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US Federal Government Fails Audit - $54 trillion debt

Economics / Analysis & Strategy Feb 08, 2007 - 10:51 AM GMT

By: Money_and_Markets

Economics

Want a great reason to own gold? Then consider the following quote from the Government Accountability Office (GAO). I'm taking this from the agency's December report on the government's financial statements: “A significant number of material weaknesses related to financial systems, fundamental recordkeeping and financial reporting, and incomplete documentation continued to ... hinder the federal government from having reliable financial information to operate in an economical, efficient, and effective manner.”

The report goes on to say that the federal government cannot reliably report a significant portion of its assets, liabilities, costs, and other related information ...


Cannot reliably measure the full cost of certain programs and activities ...

Has impaired its ability to adequately safeguard significant assets ...

And has hindered itself from having reliable financial information to operate in an economical, efficient, and effective manner.

And that's just the beginning of the report! The GAO's conclusion?

“Certain material weaknesses in financial reporting ... prevent us from expressing an opinion on the accompanying consolidated financial statements for the fiscal years ended September 30, 2006 and 2005.

“We are unable to, and we do not, express an opinion on such financial statements. As a result of these limitations, readers are cautioned that amounts reported in the consolidated financial statements and related notes [of the U.S. Government] may not be reliable.” [You can see the full report by clicking on this link .]

Sound like Enron? Or WorldCom? Or Global Crossing? You bet it does! In fact, our government's books are worse than those disasters because the stakes are so huge .

The GAO is sounding the alarm bells, but no one seems to be listening. Pay attention: When I tore apart the government's 2006 financial statements, here's what I found:

  • The actual annual federal deficit for the fiscal year ended September 30, 2006 was $4.6 trillion, up from $3.5 trillion a year ago. That's an astounding $1.1 trillion increase, or a 31.4% jump in the deficit.
  • The actual deficit is nearly nineteen times larger than the reported $248 billion deficit.
  • Total federal obligations at year-end were $54.6 trillion, up from $50 trillion in 2005 ... $46.4 trillion in 2004 ... and $32.7 trillion in 2002.

Remember, we're talking about trillions of dollars, not billions. For perspective — our country's annual GDP is one-fourth that $54.6 trillion in federal obligations.

A federal deficit of $4.6 trillion comes to $15,277 for every man, woman and child in the U.S. Total federal obligations of $54.6 trillion equal $181,399 of debt for every man, woman, and child.

These figures confirm what I've suspected for years: The government is cooking its books, largely by using money from Social Security and other trust funds like Medicare to window dress its financial statements.

Based on Generally Accepted Accounting Principals (GAAP), the same standards that public companies are supposed to adhere to, the government has a negative net worth of $53.1 trillion.

Fiscal Year Cash-Based Deficit ($Bil) GAAP-Based Less SS ($Bil) GAAP-Based with SS ($Tril.) GAAP-Based Negative Net Worth ($Tril.) Gross Federal Debt ($Tril.) Total Federal Obligations ($Tril.)
2006 $247.7 $449.5 $4.6 $53.1 $8.5 $54.6
2005 $318.5 $760.3 $3.5 $48.5 $7.9 $50.0
2004 $412.3 $615.6 $11.0 $45.0 $7.4 $46.4
2003 $374.8 $667.6 $3.0 $34.0 $6.8 $36.2
2002 $157.8 $364.5 $1.5 $31.0 $6.2 $32.7
The data in the above table is based on the U.S. Treasury's report, which can be found at http://www.fms.treas.gov/fr/06frusg/06frusg.pdf

The government is broke. It's in hock beyond its eyeballs and there is no way it is ever going to get out of this mess. And it's only a matter of time before the public catches on to the Enron-style accounting in Washington and the BS they've been fed.

What the Government's Sorry State Of Affairs Means for You …

If you want to see what the government's finances are doing to our economy, look at the value of the U.S. dollar on international markets.

Despite a little bounce here and there, the greenback's value is plunging. It doesn't buy what it did five years ago ... two years ago ... even just one year ago.

The dollar is shrinking, and inflation — in contrast to what those crooks in Washington tell you — is going to soar like crazy in the years ahead. Speaking of inflation, here's a little anecdotal story I want to share with you ...

I live on a dirt road in a country setting. Two years ago, the Homeowner's Association got the approval from a majority of the community's residents to pave the roads. The cost at that time was going to be $500 per household for 20 years.

The association didn't act or lock in the price. Now the community is ready for the roads, and the Association had to secure new bids. The lowest they got was $1,200 per household for 20 years. That's a 140% increase in just two years!

No inflation? Yeah, right. You see it everywhere you go — from the supermarket to the gas station to property taxes and insurance.

Let me tell you, those pundits who say we're headed for a depression are right. The only question is whether we'll see a deflationary depression or a hyperinflationary collapse.

My view: Since the economy is no longer based on a gold standard, the U.S. will collapse via debts, worthless currency, and hyperinflation.

It may take years for this to play out, but you're seeing the beginning phases now:

First, inflation by real measures — not the government's — is running between 8% and 10%.

Second, the dollar is weak at the knees, and ready to start collapsing again, bringing on even more inflation.

Third, commodity prices are soaring. In many cases, they've already quadrupled over the past few years — and they're set to do it again.

Fourth, as I've just shown you, the government's finances are in shambles and its reports are full of holes.

There is no way you can have a deflationary collapse when the government has more than $54 trillion in debt. The only road ahead is more debt, more money printing, more currency devaluation, and more inflation. Unfortunately, there is no other path for the U.S.

This is why I keep emphasizing the benefits of owning gold ... oil-related investments ... and other real assets that have real value and generate real wealth.

This is why I keep emphasizing the benefits of owning gold

You Can't Trust the Government With Your Money!

Undoubtedly, I'm creating some enemies in Washington by telling you this. But let's face it, all the government is going to do is rack up more debts, mismanage and screw up their finances, and then try and pull the wool over your eyes.

Washington has been fooling most of the world — its own citizens included — for some time now. But I think that this year is when it all starts hitting the fan.

That's what gold is telling you. It's up almost 9% in one month. And I think it's about to blast off through the $665 level, on to new record highs.

Oil is telling you the same thing. Yes, chilly weather and supply disruptions help push oil higher. But prices are up almost 16% in the last month!

The main reason: Oil traders are nervous.

Like gold traders, they know that Washington's finances are in trouble and they're buying up black gold because it's another tangible asset that rises in value as the dollar falls.

You should consider doing the same thing — stocking up on real assets, especially gold. BullionVault.com is currently giving a FREE gram of Swiss vaulted gold bullion to everyone who registers (worth $24)- to try the service and learn how to trade. Sign-up is easy, fast and credits you immediately.

And if you're a Real Wealth Report subscriber, hold all of my recommended positions. They are designed to help protect you from an irresponsible government!

Best wishes for your health and wealth,

By Larry Edelson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.MoneyandMarkets.com


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