Jerome R. Corsi, a Harvard Ph.D., is a WND senior staff reporter. He has authored many books, including No. 1 N.Y. Times best-sellers "The Obama Nation" and "Unfit for Command." Corsi's latest book is "Who Really Killed Kennedy?"More ↓Less ↑
As the Obama administration prepares to finance a Fiscal Year 2011 budget deficit expected to top $1.6 trillion, the American public is largely unaware that the true negative net worth of the federal government reached $76.3 trillion last year.
That figure was five times the 2010 gross domestic product of the United States and exceeded the estimated gross domestic product for the world by approximately $14.4 trillion.
“As government obligations continue to spiral out of control and the U.S. government shows no willingness to make the magnitude of spending cuts required to return to fiscal responsible, the U.S. economy is headed to a great collapse coming in the form of a hyper-inflationary great depression,” says economist John Williams, author of the website Government Shadow Statistics.
The difference between the $1.3 trillion “official” 2010 federal budget deficit numbers and the $5.3 trillion budget deficit based on data reported in the 2010 Financial Report of the United States Government is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.
The calculations in the 2010 Financial Report are calculated on a GAAP basis (Generally Accepted Accounting Principles) that includes year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.
Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.
“The broad GAAP-based federal deficits, including the Social Security and Medicare unfunded liabilities, have been in the $4 trillion to $5 trillion range in 2008 and 2009, and 2010′s deficit again likely was near $5 trillion, remaining both uncontrollable and unsustainable,” Williams wrote.
“The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so,” he warned.
In his analysis of the 2010 Financial Report of the United States, Williams listed both an official accounting and an alternative.
“The estimate of a broad 2010 GAAP-based deficit at $5 trillion is mine,” he noted. “At issue with the published report, consistent year-to-year accounting was not shown, with a large, one time reduction in reported 2010 Medicare liabilities, based on overly optimistic assumptions of the impact from recently enacted health care legislation.”
U.S. Government GAAP Accounting Federal Budget Deficits U.S. Treasury, Financial Report of the United States, 2002-2010 (John Williams, Shadow Government Statistics, ShadowStats.com)
Williams argues the total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, have effectively placed the U.S. government in bankruptcy, even before we take into consideration any future and continuing social welfare obligations that may be embedded within the Obama administration’s planned massive overhaul of health care.
“The government cannot raise taxes high enough to bring the budget into balance,” Williams said. “You could tax 100 percent of everyone’s income and 100 percent of corporate profits and the U.S. government would still be showing a federal budget deficit on a GAAP accounting basis.”
Williams argues the U.S. government has condemned the U.S. dollar to “a hyperinflationary grave” by taking on debt obligations that will never be covered by raising taxes and/or by severely slashing government spending that has become politically untouchable.
“Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover obligations,” he cautioned. “The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency.”
He is concerned that the Federal Reserve will supplement its current policy of Quantitative Easing 2, or QE2, under which the Fed intends to purchase by mid-year 2010 another $600 billion of Treasury debt with “QE3.”
“These actions (QE2 and QE3) should pummel heavily the U.S. dollar’s exchange rate against other major currencies,” he concludes. “Looming with uncertain timing is a panicked dollar dumping and dumping of dollar-denominated paper assets, which remains the most likely event as a proximal trigger for the onset of hyperinflation in the near-term.”
Williams predicts that the early stages of hyperinflation will be marked by an accelerating upturn in consumer prices, a pattern that has already begun to unfold in response to QE2.
“For those living in the United States, long-range strategies should look to assure safety and survival, which from a financial standpoint means preserving wealth and assets,” he advises.
Williams suggests that physical gold in the form of sovereign coins priced near bullion prices remains the primary hedge in terms of preserving the purchasing power of the dollar, as well as stronger major currencies such as the Swiss franc, the Canadian dollar and the Australian dollar.