Excerpt from an article in the East Valley Tribune December 16, 2008. By the Associated Press

Government Accounting Practices Differ from Private Companies’

The federal deficit for 2008 would top $1trillion if the government had to use the same accounting methods as private companies. And if you think that is a lot of money, the $1 trillion does not include the $700 billion Wall Street bailout, which is accounted for in the 2009 budget year that began October 1st.
Adding to future deficit concerns is $49 trillion more that the government is promising than it can deliver for Social Security, Medicare and Medicaid benefits over the next 75 years unless Congress steps in to shore up the system. Some combination of tax increases, benefit cuts or other policy changes is needed to stave off unsustainable deficits. This according to a 188-page “Financial Report of the United States Government” for the 2008 budget year ending on September 30th, released by the administration. Sound sobering?

If the government was required to use the accrual method of accounting used by businesses, the deficit reported at $455 billion using the cash method of accounting would be $1 trillion. Looking at the 2009 budget year the deficit is projected to top a staggering $1 trillion using the cash basis for accounting, which would be more than double this year’s deficit.

What’s even more troubling is the report doesn’t factor in the potentially enormous liabilities incurred by the Federal Reserve System over the past few months as it has tried to stabilize the financial system by taking steps like guaranteeing $306 billion worth of Citigroup troubled assets. Fed transactions are not reported on the government’s books.

Despite the turmoil caused by the financial crisis, the longer term liabilities facing the government are even more staggering.

Virtually every budget expert warns that the long-term costs of federal retirement programs like Social Security and Medicare are going to swamp the budget as more and more baby boomers retire. The long-term shortfall for Medicare grew by $3.1 trillion over the past year.

According to Representative Jim Cooper, Democrat-Tennessee, “This report show we have fiscal cancer and once you have cancer your have to treat it.” Cooper added, “Our problems are metastasizing at the rate of about $3 billion a year, and that’s before the bailout.”

So the question I raise is how long can our government continue to operate at a deficit, and one that is growing, without severe economic repercussions far worse than what we are seeing today? Businesses cannot operate forever without going bankrupt and out of business. Individuals cannot spend more than they earn forever. Why is it different for a government?

While you and I cannot correct the ills of our government - at least not easily - we can make good personal financial decisions.

Total U.S. consumer debt (which includes credit card debt and non-credit card debt but not mortgage debt) reached $2.583 trillion October 2008, up from $2.552 trillion December 31, 2007.. (Source: Federal Reserve) Residential mortgage debt stood at $10.57 trillion as of September 30, 2008. (Source: Federal Reserve) According to the American Bankruptcy Institute report, December 15, 2008, The 292,291 total U.S. bankruptcies filed during the third quarter of 2008 (July 1 – Sept. 30) represented a 34 percent increase over the 218,909 cases filed over the same period in 2007, according to data released by the Administrative Office of the U.S. Courts. Total filings for the first nine months of 2008 (Jan. 1 – Sept. 30) were up 35 percent to 841,496, compared to the 622,999 filings during the same period in 2007. The total filings include 29,960 in business bankruptcies. Add to the bad news a recent report by the Mortgage Bankers Association that one in 10 homeowners in the United States was “either at least a month behind on their payments or in foreclosure at the end of September.”

The common denominator in all this mess is debt. We as consumers are not collectively acting any different than our government. And with massive job losses in all sectors and all parts of America, a deteriorating economy and stock market losses, we will continue to see more mortgage foreclosures and personal bankruptcies. Now is the time to take stock of your resources, reduce your debt as quickly as possible, pay for purchases with cash or by using credit cards that you can and will pay off monthly and stockpile 6-months of cash for emergencies.

Tags: federal deficit, Medicade, Medicare, mortgage foreclosures, personal bankruptcies, Social Security