--- Begin Message ---
http://www.almartinraw.com/column50.html
by Al Martin
Numbers Don't Lie, Bushes Do
Deconstructing the National Debt means understanding the difference
between GAAP (Generally Accepted Accounting Principles) and BFAP
(Bush Fantasyland Accounting Principles).
According to BFAP, the figure for the publicly stated National
Debt is $5.65 trillion. When the National Debt is deconstructed in
terms of GAAP, however, you'll find that the accumulated National
Debt is closer to $14 trillion.
This figure can be calculated by plugging in debt (either
current or future debt, which will have to paid) that is not included
in the BFAP numbers. The $5.65 trillion number comes principally from
the accumulated Social Security deficit of $3.2 trillion, combined
with some provisions for the 3% non-marketable US Treasury notes that
have been inserted into the other 43 Public Trust Funds. They have
made unrealistic projections regarding the so-called "mandated
spending gaps," which are actually much higher than the figures they
use.
There is a reason why the deficit did not come down during the
Clinton Regime, despite the surplus engendered by the relatively
prudent economic management of the Clinton Regime. The National Debt
should have diminished, but instead it rose slightly from $5.42
trillion to $5.65 trillion. Of course, the Republicans would say
disingenuously that Clintonomics wasn't working and the surpluses are
a farce.
The Debt was not falling though because Treasury instruments,
previously issued during the Reagan Bush Regime to finance the "smoke
and mirrors" accounting trick of "off-budget financing," were coming
due for redemption at a greater rate. In other words, the bonds,
which were essentially off-the-books were coming due for redemption.
The Treasury Department did not even have an accurate accounting
because of the massive shredding of more than seven million documents
late in the Bush Administration. They still don't even know how many
are outstanding.
When you look at all the appropriations (I actually did this
and it took me about three days), you have to look at all the
individual appropriations and see how much of it was "off-budget
financed." By going back to the Congressional budgetary records, you
can find out how much was financed off budget. In the 1980s, for
example, you'd see a Congressional Committee and if the appropriation
passed, they'd actually say, "We'll put $8 billion on the books and
$2 billion off-record or off-budget." This was an effort to obfuscate
the actual size of the annual fiscal budget deficits during the
Reagan Bush Regime. Everyone then would agree -- because at the time
nobody even questioned this off budget financing. Nobody even
understood what it was all about. The markets never questioned it.
The American people never questioned it, and they never even tried to
hide it.
When there is a fiscal budget deficit, it means that everything
is deficit financed, so the only way the money is coming in to make
up the gap is through the sale of Treasury instruments. You don't
necessarily know which series of Treasury instruments because it
isn't figured that way. There are regular weekly, monthly, and
quarterly sales of US Treasury bills, notes and bonds, which are used
to finance spending appropriations.
Even though there is no way to actually translate that into
budget figures, I would estimate that there were about $400 billion
of bond redemptions, which were directly caused by off-budget
financing during the Clinton Regime. This number can be ascertained
by looking at the total budgetary surpluses generated by the Clinton
Administration. Then you can find how much of that money was actually
used to repurchase and retire Treasury instruments. The Treasury
Department has these figures because the Treasury Department had to
execute the orders. So you could find out how many Treasury
instruments were repurchased and, of course, retired.
When a corporation repurchases its stock (to support the shares
in the marketplace or if they need the shares for their ESOPs and so
on), those shares are not retired. They are simply repurchased by the
company, which reduces the outstanding "float," the amount of shares
floating on the market at any given time. It doesn't change the debt
to equity ratio or the book value of those shares because the shares
aren't being retired. There is a difference.
When you repurchase and retire debt, you change the debt to
equity ratio and you actually increase the equity vs. the debt part
of the ratio.
In other words, according to the way it's calculated by GAAP
accounting standards, the National Debt rose about $230 billion
during the eight years Clinton was in office. Yet there were $373
billion worth of US Treasury instruments, which were repurchased and
retired. So obviously there's something wrong.
If we subtract the total number of Treasury instruments
purchased and retired and then subtract that number from the amount
the National Debt grew according to GAAP, we come up with a surplus
of $143 billion. Accumulated debt should have diminished by $143
billion instead of increasing.
In other words, there were more bonds coming in for redemption
than the Treasury Department had calculated. There is, therefore, an
unknown amount of Treasury instruments outstanding that the Treasury
is unaware of due to "smoke and mirror" accounting practices and the
massive shredding of documents during the Reagan Bush Regime. The
Department of the Treasury is uncertain how many debt instrument had
been issued and sold pursuant to so-called "off- budget financing."
There is probably still $1.5 trillion outstanding in a variety
of Treasury instruments, obligation notes, collateral guarantees
etc., that the Treasury Department is not counting as debt because it
is unsure how many securities are outstanding.
What else is not being counted as debt, which actually is debt,
is the compounded interest in arrears, which is inured every year by
the 3% coupon non-marketable US Treasury Securities, used to make up
for the $3.2 trillion that the Reagan Bush Regime defrauded from the
Social Security General and Disability Trust Funds.
Since these securities are not marketable, the interest simply
compounds in arrears. In other words, of that $3.2 trillion in Social
Security debt (even before George Bush said they will be raiding
Social Security again), the debt actually increases by $100 billion a
year because of the compounded interest in arrears that should be
calculated on non-marketable securities. That will either have to be
paid when a future government should engender sufficient fiscal
surpluses in order to redeem these non-marketable instruments or at
such time that a future government, like the successor to the Bush
Administration, should be forced to convert these securities into
marketable securities.
The Clinton policy was to generate surpluses, but he didn't
even get that far. Using prioritized debt reduction, he planned to
repurchase and retire US Treasury instruments, then divert the
surpluses and begin to repurchase these non-marketable Treasuries out
of the Social Security portfolio in order to retire them. They would
have had to repurchase them at such a price as to pay the compounded
interest in arrears. The 3% coupon rate borne by these securities was
not a number chosen at random, but rather it is the interest rate
that Social Security pays on your "contributions."
Reaganomics dictates, as George Bush has admitted, that there
will be no budgetary surpluses. There will be nothing but deficits.
So how do you refund the money? How do you put back the money you
previously stole from Social Security? In other words, how does Bush
Jr. put back the money his father Bush Sr. stole in a fiscal
budgetary deficit situation?
You can do this by converting these securities from non-
marketable to marketable, simply by removing the restrictive
covenant. In the securities business, it's called "removing the
letter."
The president would have to authorize it. Then these securities
would become, in market parlance "free to trade." They would simply
be sold into the marketplace, incorporated as part of ongoing sales
of Treasury instruments.
That takes a lot of assumptions. You can't convert an
unrestricted security that has an implied debt in it because of
interest in arrears. You have to recalculate the number. In other
words, there are $3.2 trillion of these non-marketable bonds stuck in
the Social Security portfolio, but that number is increasing by a
$100 billion per year because of the interest.
In eight years time, you'd have to re-issue more of the bonds.
You wouldn't be selling $3.2 trillion of them. You'd be selling $4
trillion and that is making the assumption that in the future the
Treasury market will be sufficiently liquid to absorb such a massive
amount of debt instruments. An additional supply of $4 trillion would
increase the entire outstanding issuance of all Treasury securities
by 50%.
Liquidity depends on the economic strength, the gross domestic
product, the liquidity of funds at any given time, investor interest
in these Treasury notes, foreign central banks' demand or need for
these notes, and the interest spread differentials between the long
and short end of the maturity. There are actually a lot of factors
involved.
To try to market $4 trillion worth of securities into a market,
in which the Treasury might be selling $300 billion or more per annum
in order to finance a budget deficit -- this would effectively double
the sales for a period of fifteen years.
The question then becomes - could the entire global economy
even generate sufficient surplus liquidity to absorb those bonds?
We are in a world that is gradually falling apart and in an era
of global debt deflation that could potentially last for decades,
until everything was finally unwound and collapsed. The portrayal of
a rosy scenario, which the Bush Administration likes to depend on for
its economic forecast, thus becomes even more highly suspect.
Here's another smoke and mirrors accounting trick. Treasury
lists these 3% non-marketable Treasury notes as current assets in the
Social Security portfolio. In fact, they're not. They're not
liabilities, either, but they're not current assets because they're
not marketable. The SEC has clearly stated that they aren't worth
anything. A security that isn't marketable because it has some
restricted covenant attached isn't worth anything.
If they didn't have restrictions, that would have defeated the
entire purpose. If your intent was to raid Social Security (as the
Reagan Bush Regime wanted to do) to deplete all of its cash, you
can't deplete cash and then replace it with a near cash instrument.
US Treasury instruments are considered near cash instruments for
accounting purposes. A non-marketable security isn't a debit. That
way you can issue them almost ad infinitum.
Also not included in the National Debt figure is the unknown
billions of dollars that the Reagan Bush Administration raided from
the 43 Public Trust Funds, in which it used the same non-marketable
Treasury instruments to replace the cash it had stolen.
The "mandated spending gaps" that were created during the
Reagan Bush Regime are also not being counted as debt. A "mandated
spending gap" is money that was previously authorized for something
that was supposed to have been spent, but which was not spent --
because the money was stolen. This occurred throughout the Reagan
Bush Regime, particularly after 1984, when the deficits really began
to balloon. The Administration, in its annual budget, would skim some
of that money off the top and move it over to Defense to make it
appear that we were spending less money on defense than the enormous
sums we were already spending.
This was hidden through what was called "mandated to spend
authorized delayed projects" because there was no money left to fund
the projects. In other words, a federal agency like the Department of
Education, which was supposed to spend so much on certain projects,
didn't have the money to complete various building projects and have
sufficient money for school restoration it was required to spend
because a certain percentage of that money had been skimmed off the
top.
Therefore they would have what were called "delayed funding
projects," so that at the end of the year when they had to account
for the money, there would be a caveat that would explain that some
of the money was in "delayed construction pending." To hide the loss,
they would reduce the maintenance contracts, or stretch them out,
without making a notation for it in the budget.
Here's the problem. According to General Accounting Office,
this has created a $350 billion spending gap in the Federal education
budget. This has to be spent and the result of this "spending gap" is
we have public schools, which are falling apart because they haven't
been properly maintained and a shortage of classrooms because the
Department of Education has not built as many schools as it had
planned to build.
At some point in the future, that hole of $350 billion will
have to be plugged with cash, so that what was supposed to have been
done will be done. Otherwise the problem of schools falling apart
because they haven't been maintained properly will grow even more
severe.
What happens is the "hole" keeps getting carried forward. The
Department of Education is used as an example here. But there are
budgetary gaps in every federal agency, which now total in the
aggregate about $1.5 trillion.
This has happened because of the Reagan Bush Regime's
misappropriation of monies throughout the federal agencies to mask
the money, which was being spent on defense. We currently have
accumulated spending gaps, which total about $1.5 trillion.
The largest of those gaps is what's called "Net Infrastructure
Spending," which includes Department of Transportation, Department of
Interior, Department of Commerce, Bureau of Land Management, etc.,
about 18 different agencies responsible for infrastructure spending.
It's estimated to be $550 billion. And what are the results?
The nation's bridges and roads are in a dire state of disrepair. A
GAO report has stated that 25% of the nation's federal highway system
is now "dangerous," and 28% of the nation's bridges are also
considered "dangerous." Then there are the airport computer systems,
the butt of jokes since half of the equipment still use vacuum tubes.
When maintenance technicians go to the General Services
Administration to replace parts, they can't even find them because
they stopped making these parts forty years ago. A maintenance tech
at Logan Intl Airport actually had to go to somebody who deals in
antique electronics instrument to find the vacuum tube he needed.
That is the net result of this nonsense - road and bridges are
falling apart and antiquated air traffic control systems are still in
use. Internal waterways are also falling apart -- 18% of all internal
waterways, canals etc., that the federal government is responsible
for had to be shut down because they don't work anymore.
These are some of the larger items in the National Debt that
aren't being counted as National Debt. If you applied Generally
Accepted Accounting Principles to the National Debt, these things
would be included, as well as contingent liabilities -- either future
real liability or future contingent liability, including billions of
dollars the United States is obligated to pay because of a variety of
treaties. For instance, the US Federal Reserve maintains a $50
billion emergency stand-by credit fund to support the Canadian dollar
in the event it collapses. We still have multi-billion dollar
commitments around the world that constitute debt -- money that has
to be spent and for which there are no provisions. There are also
debts to the United Nations in arrears and debts to the IMF in
arrears.
We also have an enormous amount of liability in the ill-
conceived so-called "Brady Bonds." Brady Bonds are essentially US
Treasury securities, which get stripped of their coupon payment and
become what's called a "strip" or "stand alone asset." They are used
to back loans, mostly coming from banks or bond funds for marginal
Third (and Second World) countries like Mexico, Brazil, Peru and
Argentina.
If you look at these more speculative high interest rate
government bond funds, you'll find they're loaded with Mexican bonds
or Brazilian bonds. What happens is that these Brady bonds get issued
as the ultimate guarantor of principal, yet they do not guarantee
interest payment. When you ask the Treasury Department, nobody seems
to know how many of these Brady Bonds have been issued. It is known
that hundreds of billions of dollars of them are out there. They were
used to bail out Mexico and Russia, but nobody seems to know how many
there are. Not only that, but nobody cares.
These are some of the highlights why the National Debt is not
what it appears to be, according to BFAP accounting. When you apply
GAAP accounting to the National Debt, you find that the National Debt
is actually about $14 trillion. That's called RWA, or Real World
Accounting.
The Clinton administration was operating under the assumption
that the actual National Debt was about $14 trillion. Clinton said we
have to raise $15 trillion by 2025 to pay off everything, all the
National Debt, all the unsecured instruments outstanding, and to plug
all the holes in unfunded spending measures and so on. That's $14
trillion, plus another trillion for compounded interest over a 25-
year period. The number of $15 trillion would have done the job. He
was even going to retire about $200 billion of Savings Bonds
outstanding because they are debt as well.
One reason why the stock markets worldwide came under pressure
recently was because of the unwinding of the Clinton confidence
factor. It is very likely the final unwinding. When there was a
sudden massive liquidation of US dollars, receipt of which were moved
into gold, it was an indication that the remaining hope that Bush
would follow Clintonomics had finally disappeared. People simply
threw in the towel, and the markets reacted worldwide to that
realization.
The confidence in the US economy was also shaken worldwide. If
George Bush remains in office for one term, we will probably be
looking at an aggregate deficit of $30 trillion by the year 2025 --
not including the interest. And there will be a gradual loss of
confidence, as it is more widely understood that Bush has firmly
returned us to the road of Reaganomics.
Part of the loss of confidence was also due to the Bush
Administration reneging on most of its economic campaign promises.
When they announced that they had abandoned any effort to pay down
the National Debt and they would not only attempt to redeem the
previously mentioned worthless Treasury securities from the Social
Security fund, but would again begin to raid the Social Security
Trust Fund as a preemptory measure to hide the enormous fiscal budget
deficits which lay just over the horizon - that was it.
It is important that Bush not stay in office more than one
term -- to at least try to limit the damage he's going to do to the
economy in the long run. The perception that there is no difference
in economic strategy between the Clinton and Bush Regimes is not
valid. On the day George Bush Senior left office, the nation had a
6.7% unemployment rate. On the day Clinton left office, the nation
had a 3.8% unemployment rate.
On the day George Bush Senior left office, the US Treasury was
bleeding red ink at a rate of $2 billion per day. When Clinton left
office, the nation's Treasury was inuring black ink at the rate of
nearly $700 million a day. There is a difference.
But there is no confidence in BFAP (Bush Fantasyland Accounting
Principles). GAAP wins every time.
It reminds me of the time when Bush Senior came up with the
concept of the "Evil Empire." Now Bush Junior is talking about
the "Axis of Evil."
What does it mean? Any time that a Bush attaches the
word "Evil" to American foreign or military policy, watch out.
Hundreds of billions of dollars of fiscal deficit spending are just
around the corner. . .
AL MARTIN is America's foremost whistleblower on government
fraud and corruption. A retired US Navy Lt. Commander and former
officer in the Office of Naval Intelligence, he has testified before
Congress (the Kerry Committee and the Alexander Committee) regarding
Iran-Contra. Al Martin is the author of "The Conspirators: Secrets of
an Iran Contra Insider" (2001, National Liberty Press, $19.95; Toll
FREE order line: 1-866-317-1390) He lives at an undisclosed location,
since the criminals named in his book have been returned to national
power and prominence. His column "Behind the Scenes in the Beltway"
is published regularly on Al Martin Raw: Criminal Govt Conspiracy
©2000, 2001 Al Martin Raw All Rights Reserved
------------------------ Yahoo! Groups Sponsor ---------------------~-->
<FONT COLOR="#000099">Buy Stock for $4
and no minimums.
FREE Money 2002.
</FONT><A HREF="http://us.click.yahoo.com/orkH0C/n97DAA/Ey.GAA/xYTolB/TM";><B>Click
Here!</B></A>
---------------------------------------------------------------------~->
Please let us stay on topic and be civil.
To unsubscribe please go to http://groups.yahoo.com/group/cia-drugs
-Home Page- www.cia-drugs.org
OM
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
--- End Message ---
