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Misleading the Country on the Magnitude of our National Debt

It doesn’t take an accounting degree to understand how much debt we have.  However, a couple basic tenets of accounting are helpful in identifying the true national debt that we are faced with.  As advertised, the current national debt is $17,472,051,696,926.14 – or $17.5 trillion.  You may not be aware of this, but there is not a publicly traded company that can report their liabilities in this fashion.  Why?  Because it would be illegal and misleading.  The SEC would not allow it!

Not to bore you with the minutia, but it boils down to three methods of accounting – cash, accrual, and modified accrual.  Public companies must use the accrual based method because the SEC considers it the most accurate method to present financial position.  Briefly, how each works:

  • Accrual method – You receive a bill for corporate healthcare premiums for $5,000.  Even though cash is not immediately sent to pay the bill, the liability for the amount you owe – $5,000 – and an expense it recorded.
  • Cash method – You receive a bill for corporate healthcare premiums for $5,000.  Nothing is recorded until the bill is paid.  At that time a $5,000 expense is recorded.
  • Modified Accrual method – This would be a variation of the two above.  Perhaps recording a liability for only part of the premiums that extend over the next year and leaving the remaining liability off of the books.

Why is this mumbo-jumbo important?  If you were to invest in a company that has ten year loan from the bank, would you be interested in knowing how much of the loan is due this year or over ten years?  What if they weren’t required to pay anything back in the first five years, would it be accurate to say they have no debt?  Of course not – you would need to know the entire amount of debt to determine the quality of the investment.  The government goes to great lengths to stress the importance of understanding these accounting methods.  Needless to say, the omission of certain federal liabilities is misleading.  So misleading that the actual federal debt is closer to $70.7 trillion.

Where does this come from?  Primarily Medicare and Social Security.  The breakdown of our debt is as follows:

Actual Federal Debt

CategoryBillions $
Publicly Held Debt12,028
Other Liabilities7,849
Social Security Expenditures Net of Receipts26,500
Medicare Expenditures Net of Receipts27,302
Less Assets(2,968)

The $70.7 trillion debt really is no secret.  It is outlined beginning on page #69 of the U.S. Governments FYE 2013 and 2012 Consolidate Financial Statements.  Note 24 outline our additional Social Insurance obligations.  The magnitude of this much debt is difficult to get your hands around.  A simple back of the envelope calculation would indicate that if we eliminate every program except Social Security and Medicare, and use the rest of our budget on paying off the debt, we could be debt free in 53 years!  That also assumes our budget is balanced as well.

The calculation:

  • Receipts of $2.775 trillion
  • Medicare and Social Security – 46% of Budget or $1.276 trillion
  • Interest on Debt – 6% of budget or $166.5 billion
  • Receipts less Spending = 1.332 trillion ($2.775 – $1.443)
  • $70.711 trillion divided by 1.332 trillion = 53.08 years under currently impossible conditions

So I ask, what’s the solution?  Do you look at government spending any differently?

Actual National Debt

{ 2 comments… add one }

  • I Heart Econ May 13, 2014, 8:37 am

    Hey Nudist,

    Good Post. Throughout history all great nations have fallen due to their desire to continually overextend. What is it about the human spirit that causes us to run towards the cliff when it is so easily avoidable?


  • I heart Econ May 13, 2014, 11:02 am

    Gayle, I agree with you. The failings that we see in history is a result of military. We have over 900 bases around the world. We outspend every other country by a large margin in military spending. That is something that has to be addressed in order to slow down the debt accumulation. Reversing it seems a difficult sell in our current political arena, we need to slow it down first.

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