Can You Guess What Country’s Financial Information Is Summarized Below?

Which country’s financial information am I describing?

The financial crisis and subsequent world-wide events breathed new life into the scrutiny of governmental financial information reports. The renewed interest is, in part, due to an appreciation of risk and a lingering distrust as the result of being burned.

One national government’s financial information report consolidates over 150 operating entities within the financial report; however, it excludes those entities which are autonomous. In fact, one of its autonomous agencies has a balance sheet that is one-quarter of the size of the national government but it is not consolidated.

On an accrual basis, the national government’s liabilities are five (5) to six (6) times greater than the assets leaving the government deeply in the hole. Care to guess?

The answer

If you guessed the country was Greece, you are wrong. Although Greece did not report defense expenditures as part of its budget shortfall and thus hid the magnitude of its deficits pre-crisis, it is not Greece. One can recall the unrest in the financial markets and in the European Union as the Greek Debt crisis played out. The media and European leaders characterized the Greek government and its financial management as irresponsible and deceptive. How would one characterize the government and its financial affairs based on what is set forth above?

The culprit is the United States. The 2015 Financial Report of the United States Government is prepared by Treasury and OMB and is audited by the GAO. The United States has a negative position (assets less liabilities) of $18.2 trillion dollars. $13.2 trillion of the liabilities are debt and interest on obligations held by third parties. Three areas account for 66% of operating expenditures and they are Defense (15%), Social Security (24%) and Health and Human Services (27%). The cash based operating budget deficit is $439 billion and it increases to $520 billion on an accrual basis to anticipate post-retirement benefit programs and changes in asset valuations. The bright spot is that the past five years show a narrowing of the deficit as revenue increases and costs are reduced.

The Federal Reserve Bank

The agency whose financial information is not consolidated is that of the Federal Reserve Bank. It is because of its independent Board of Governors that it is not consolidated, a result that I concede is correct. Although nominated by the President and confirmed by the Senate, the Board of Governors does exercise independent discretion. The debt of the US government that it holds is, however, massive and history has no precedent for the unwinding of these obligations through retirement or refinancing.

Our debt to GDOP ratio is unsustainable; however, the debates and election rhetoric bypass the stark reality of these figures and the downward trajectory of our glide path.

The 2015 report is 267 pages; however, there is a condensed eight page document called the Citizen’s Guide which is available to the public for those who are interested.