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Is the Federal Government a ‘Going Concern’?

According to BusinessDictionary.com, the term ‘going concern’ is “(a) basic principle in accounting that assumes a company will continue to operate in the foreseeable future. The significance of this principle becomes apparent when the value of a running business is compared with the value of one being liquidated.

After seeing the following chart, which appears on page iv of the U.S. Treasury Department’s “Citizens Guide to the 2012 Financial Report of the United States Government,” American taxpayers cannot help but wonder how much longer America can continue on its present course. (the Guide available here as a single document)


Note: the chart was copied from AEIdeas, the blog of the American Enterprise Institute, and was posted by James Pethokoukis.

In the conclusion of the Citizens Guide, the Treasury Department wrote:

The Government took potentially significant steps towards fiscal sustainability by enacting: (1) the ACA in 2010 and (2) the BCA in 2011. The ACA holds the prospect of lowering the long-term per beneficiary spending growth for Medicare and Medicaid, and the BCA significantly curtails discretionary spending. Together, these two laws substantially reduce the estimated long-term fiscal gap. But even with these new laws, the Government’s debt-to-GDP ratio is projected to increase continuously over the next 75 years and beyond if current policy is kept in place, which implies that current policy is not sustainable. Subject to the important caveat that changes in policy not be so abrupt that they slow the economy’s recovery, the sooner policies are put in place to avert these trends, the smaller the revenue increases and/or spending decreases will need to be to return the Government to a sustainable fiscal path." (emphases added)

Yesterday, the Huffington Post began their reporting of the news of the financial 2012 audit of the federal government this way:

"The Government Accountability Office said Thursday that it could not complete an audit of the federal government, pointing to serious problems with the Department of Defense.

"Along with the Pentagon, the GAO cited the Department of Homeland Security as having problems so significant that it was impossible for investigators to audit it. The DHS got a qualified audit for fiscal year 2012, and is seeking an unqualified audit for 2013.

"The report released by the GAO on Friday indicates serious accounting problems at two of the largest government agencies: the Pentagon and the Department of Homeland Security. The Department of Defense has a net cost of $799.1 billion to the federal budget, while the Department of Homeland Security has a net cost of $48.7 billion."

The blog Conservativebyte chose to begin their reporting this way:

"The Government Accountability Office warned in a report that if cuts are not made to mandatory spending — including Social Security and Medicare — there will be a fundamental gap between spending and revenue as more baby boomers retire."

Unfortunately, there has been very little reporting so far by such stalwart news outlets as the Washington Post, the New York Times, or the cable news outlets on this major financial management event.

As Pethokoukis notes in the title of his blog article, "USA Inc.’s balance sheet: Assets $2.7 trillion, Liabilities $18.8 trillion." Virtually any private sector corporation having such balance sheet numbers would have long-ago declared bankruptcy. What a legacy have Members of Congress and the President given America's citizens.

Additional Resources: In addition to the Citizens Guide (prints to 8 pages), which includes several explanatory charts, the Treasury report and the U.S. General Accountability Office (GAO) transmittal letter should also be a must-read (prints to 7 pages). However, if you're a policy geek or a masochist, the full report, chapters of the report, or back reports are available at the Treasury Department's Financial Management Service.

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