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
|Publicly Held Debt||12,028|
|Social Security Expenditures Net of Receipts||26,500|
|Medicare Expenditures Net of Receipts||27,302|
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.
So I ask, what’s the solution? Do you look at government spending any differently?