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Understanding Federal Government Financials (Vol. 52)

Updated: Feb 7, 2023

analyticsbox | May 18, 2022


Newspaper with Financial News

Apologizing in Advance - This Could Hurt Your Brain

It hurts my brain trying to read and understand them, and I am (was) an accountant. So hold on while I try to explain.

The Fiscal Year of the Federal Government is September 30, and each year the government publishes its financials. The most recent were published in February, 2022, for the year ended September 30, 2021. If you are a masochist, you can read them here, all 258 pages of it.

The Executive Summary is 11 pages here with a condensed Balance Sheet and a Statement of Net Cost which shows the following:


And be sure to look on Page 8 where the following note is disclosed:


‘An important purpose of this Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs. This report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio reached approximately 100 percent at the end of FY 2021 which is similar to (but slightly below) the debt-to-GDP ratio at the end of FY 2020. The long-term fiscal projections in this report are based on the same economic and demographic assumptions that underlie the SOSI. The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections based on the assumptions discussed in the Financial Report assume current policy will continue indefinitely. The projections are therefore neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes need to be enacted for the actual financial outcomes to differ from those projected.’


Also note that the Interest bearing debt above does not include 6,200 Billion the Treasury owes to the various Trust funds (Social Security and Medicare are the largest) from which it has borrowed, making the total Interest bearing debt over 28 Trillion, or approximately 130% of GDP.

Also note that what is not shown are the Unfunded Obligations of the Federal government. This is estimated by the government to be 70+ Trillion dollars. This is the shortfall in the Entitlements (primarily Social Security, Medicare, and Medicaid) over time as explained in No Spin #45. The total debt as of September 30, 2021 is:


$112,000,000,000,000

(Yes you are reading that correctly - $112 Trillion dollars!)


BOTTOM LINE

These statements are complex and hard to understand in detail, but the Summary is not hard to understand: WE ARE BROKE!

And getting ‘broker’ every year, including the projections from the recently proposed Budget from the current Administration which projected another 14+ Trillion in debt over the next 10 years.

The Report says it all. We are on an UNSUSTAINABLE FISCAL PATH. Need I say more. It can be fixed if we have the will to say to our politicians, fix this mess, before it is too late.

I recommend you do just that, today!

LEARN ECONOMICS, THEN VOTE SMART

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