E United States Cash Deficit - A Better Calculation

Over the last ten years, specifically between September 2004 and August 2014, according to official government reports, the United States Government ran a deficit of $7,524,990,000,000 ... just over $7.5 Trillion dollars if you don’t feel like zooming in your browser to count the zeros. It’s bad ... really bad, but you already knew that.

Here is something you may find curious. Over that same period, Public Debt outstanding increased $910 billion more than the reported deficit at +$8.435T and total debt (including intragovernmental) increased $2.873T more at +$10.398T. As an accountant, this intrigues me, because in theory, calculating the deficit is extraordinarily simple thing to do. Just for fun, let''s pencil it out. All we need is four numbers to calculate the cash deficit for a given period: beginning and ending cash balances, and beginning and ending debt outstanding. For this exercise we will ignore the $5T of “intragovernmental debt” because shuffling IOU’s from one pocket to the next has zero effect on cash.

Starting with debt, September 2004 began with $4.298T of public debt outstanding and August 2014 ended with $12.733T. The difference is $8.435T (BAD), which is what we would expect the reported deficit to be if cash were equal. However, looking at the cash statement, we can see that the cash balance increased from 3B to begin September 2004 to $49B ten years later, a $46B gain GOOD. We then subtract this gain from the change in debt, and get a calculated cash deficit over the last 10 years of $8.389B, $864B higher than the reported deficit.

Interested yet? On the surface, it looks a lot like the official government deficit report is systematically understating the deficit by over $85B per year. Now to be clear, I’m not claiming anything illegal is going on. However, if you give an organization the ability to define their own accounting policies, it’s not too hard to imagine that a few clever accountants will find a few ways to make 2% of a $3.8T annual budget disappear. One prominent example is the likely exclusion of the US Post Office from the official numbers under the silly claim that it is an independent organization. So when Treasury floats USPS a $15B loan ... rather than counting that in the deficit ... they probably book it as an asset, even if we all know it will never be repaid. Now, the Post Office alone doesn’t come close to explaining the $841B of missing deficit, but I think you get the idea. At the end of the day, the simple conclusion I have come to is that the government deficit figures simply can not be trusted and that an alternative metric is needed.

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