Alert
A L E R T
December 16, 2006
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2006 GAAP-Based Federal Deficit Jumps to $4.6 Trillion
Total Federal Obligations at $54.6 Trillion
Energy Pricing Gimmicks Distort CPI and Trade Deficit
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The SGS-Alternate Measure of Consumer Inflation has been updated on the Alternate Data page. The December SGS is targeted for month-end publication, and it will be slimmed down some, the same material but with less repetition of major points, per subscriber suggestion. The coming issue will focus on the risks of hyperinflation versus deflation. Best wishes to all for a most joyous holiday season! -- John Williams
Yesterday, the U.S. Treasury published its annual generally-accepted-accounting-principles (GAAP) basis financial statement, signed off on by Treasury Secretary Henry M. Paulson, Jr. The consolidated statements show that the actual annual federal deficit for fiscal year ended September 30, 2006 was $4.6 trillion, up from $3.5 trillion in 2005. Total federal obligations at year-end were $54.6 trillion, up from $50.0 trillion in 2005.
The actual deficit number was nearly 19-times the size of the gimmicked "official" deficit for 2006 of $248 billion. Total obligations were 4.2-times annual U.S. GDP.
The above GAAP numbers include accounting for the year-to-year change in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare. The Treasury notes that these liabilities are "not considered liabilities on the balance sheet." While Treasury has pushed for such an accounting standard for the federal government, it would not have a choice as to reporting these obligations if it were a corporation such as General Motors.
Net of the obligations for Social Security and Medicare, the GAAP-based deficit narrowed to $450 billion in 2006 from $760 billion 2005. Such is not credible give the bookkeeping for Katrina relief and the Iraq War. While these numbers likely involve some accounting shenanigans -- as did the last reported annual deficit decline in the 2004 -- the method is not obvious given a quick review of the 172-page document. The issue will be looked at more closely in the December SGS. Nonetheless the published estimates are roughly double the "official" deficits reported for 2005 and 2006.
The 2006 GAAP statement can be found on the Treasury's Web site, under Financial Management Services at: http://www.fms.treas.gov/fr/index.html
Reported by U.S. Treasury
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Dollars are either billions or trillions, as indicated.
Sources: U.S. Treasury, Shadow Government Statistics.
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Formal GAAP GAAP GAAP Total
Cash- Ex-SS With SS Federal Gross Federal
Fiscal Based Etc. Etc. Negative Federal Obligations
Year* Deficit Deficit Deficit Net Worth Debt (GAAP)
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($Bil) ($Bil) ($Tril) ($Tril) ($Tril) ($Tril)
------ ------ ------ ------ ------ ------
2006 $247.7 $449.5 $ 4.6 $53.1 $8.5 $54.6
2005 318.5 760.3r 3.5 48.5r 7.9 50.0r
2004 412.3 615.6 11.0r** 45.0r 7.4 46.4r
2003 374.8 667.6 3.0r 34.0r 6.8 36.2
2002 157.8 364.5 1.5 31.0r 6.2 32.7
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* Fiscal year ended September 30th.
** Estimated at $3.4 trillion, excluding one-time unfunded setup
costs of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (enacted December 2003).
r - Revised prior-period data as shown in the 2006 Report.
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The GAAP numbers in the above table are derived from or published in the tables on pages 3, 6 and 13 of the Report,
As usual, the Government Accountability Office (GAO) -- formerly the General Accounting Office -- would not certify the statement, due to "material weaknesses in financial reporting" (page 27). The GAO, which uses a less expensive definition (on an open versus closed group basis) than the Treasury in its Social Security and Medicare numbers, noted (page 28): "that the Federal government's fiscal exposures total approximately $50 trillion as of September 20, 2006, an increase of about $4 trillion over September 30, 2005, and up from about $20 trillion as of September 30, 2000.
As noted in SGS analyses of prior years' statements, the current GAAP-based deficit is beyond containment in the present environment. Severe political constraints limit any meaningful reduction of the Social Security and Medicare programs, while addressing the issue with taxes is impossible. If federal income taxes were adjusted to as to seize 100% of all salaries and wages earned in the United States, the government's operations still would be in deficit. Contrary to the suggestion of Treasury Secretary Paulson, the United States cannot grow its way out this shortfall. The problem is out of control. Further detail follows in the December SGS.
Trade. The unbelievable $5.4 billion monthly decline in the seasonally-adjusted October trade deficit to $58.9 billion from September's $64.3 billion was more than accounted for by an equally preposterous plunge in reported oil import prices, which was on top of price declines in the prior two months that more than accounted for oil's recent drop. Without the phony oil price decline, the trade deficit would have risen to $64.9 billion. Of significance, since the reported GDP is adjusted for inflation, this deficit "narrowing" should really be a negative, instead of a positive, for the government's estimate of real (inflation-adjusted) fourth-quarter economic growth.
Retail Sales. The Census Bureau switched to a new sample for its retail sales estimates, which will be discussed in the December SGS. On the new basis, seasonally-adjusted November retail sales rose by 1.0% plus or minus a wider error margin of 0.8%, formally 0.7%, and following a revised October decline of 0.1% that had been restated on the new basis to a contraction of 0.4% against an old basis initial reporting of a 0.2% drop. November was up 5.6% from the year before. Of note, gasoline station sales rose by 2.3% from October, suggesting a like increase in gasoline prices.
Consumer Price Index. The seasonally-adjusted November CPI-U was unchanged from October, (down 0.15% unadjusted), following October's 0.49% adjusted monthly drop. Of significance, seasonally-adjusted gasoline fell by 1.6%. In conjunction with the retail sales report, this suggests an understatement of gasoline inflation by 3.9% in November, and a corresponding 0.2% understatement of the CPI, which is about how much the CPI came in below market expectations. On a year-to-year basis, annual CPI inflation rose to 1.97% in November, up from 1.31% in October. Annual inflation for the SGS Alternate Measure was 9.4% in November, up from 8.9% in October.
Industrial Production. The Fed went through its annual benchmark revision to industrial production, finding that growth in recent years had been weaker than previously report. The seasonally adjusted 0.2% gain for November follows a flat October that previously had been up by 0.2%. Annual growth now has slowed to 3.8%
Ongoing deterioration in the inflationary recession continues. More complete details follow in the December SGS.
December's "Shadow Government Statistics" monthly newsletter is targeted for month-end release.