Biotech Values

[DewDiligence]

Federal Misconceptions

John Williams of www.shadowstats.com notes that official US deficit statistics do NOT include net present value of unfunded social security OR Medicare expenses. A lot of folks have made a big deal about the US running a $1 trillion deficit this year. Well, if you included the net value of those unfunded Social Security and Medicare expenses we cleared a $1 trillion deficit in 2007, a $5 TRILLION deficit in 2008 and are on course to clear a $9 TRILLION deficit this year.

The writer is confusing the federal deficit and the federal debt, which is a serious mistake for anyone to make and an egregious mistake for someone purporting to be an expert on the subject.

In the federal government reported its financial condition according to GAAP, unfunded liabilities for SS and Medicare would show up on the balance sheet, not the income statement. I.e., these items would add to the federal debt but they would have no effect on the federal deficit (other than by increasing the interest payable on the debt).

Moreover, if the federal government reported its financial condition according to GAAP, its net worth (“Taxpayers’ Equity”) would in all likelihood be a huge surplus. This was the answer to a quiz I posed on this board a few weeks ago.