What if the Economy is Much Worse Than We are Being Told?

John Williams, among other things, produces an electronic newsletter called Shadow Government Statistics. Less you think Mr. Williams is some king of right-wing blogger, I suggest you click on the link and read some of his bio. He is a professional economist who has consulted to the private sector for over thirty years. I have reproduced his graphs on unemployment and inflation various times in the past. Take a look:

One of the things Mr. Williams likes to do is to apply Generally Accepted Accounting Principles (GAAP) to government accounting in the same way corporations must do their accounting. In this Shadow Government Statistics report, he wrote:

Broader GAAP-based federal deficits, including the Social Security and Medicare unfunded liabilities, have been in the $4 trillion to $5 trillion range in 2008 and 2009, and 2010’s deficit again likely was near $5 trillion, remaining both uncontainable and unsustainable.  The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so.  On the spending side, all government spending, except Social Security and Medicare could be cut, but the broad GAAP results still would be in deficit.  As demonstrated by recent Administration and Congressional reaction to the deficit cutting measures put forth by the deficit commission, there is no political will to slash Social Security and Medicare severely.

This is not something new with our government. In a report issued in 2004, he wrote:

The U.S. government’s fiscal ills have spun wildly out of control and no longer are containable within the existing system. As detailed in this article, the actual annual shortfall in U.S. government operations for fiscal year 2003 (September 30) was $3.7 trillion. Put in perspective, that means if the U.S. Treasury had seized all wages and salaries in 2003 with a 100% income tax, there still would have been a deficit! The outlook for fiscal 2004 numbers is even worse.
Considering that the popularly reported 2003 budget deficit was $374 billion, one-tenth the number cited above, this installment on government reporting concentrates on where the incredulous $3.7 trillion number comes from, how and why the Treasury is reporting it, and why the financial press and federal politicians are ignoring it.

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The impossibility of this circumstance working out happily is why lame-duck Federal Reserve Chairman Alan Greenspan suddenly has urged politicians in Washington to come clean on not being able to deliver promised Social Security and Medicare benefits already under obligation. He suggests, correctly, that there is no chance of economic or productivity growth resolving the matter. The funding shortfall projections already encompass optimistic economic assumptions.

Purist will argue that GAAP accounting is not a realistic way to analyse the government’s financial situation. They say that because programs like Social Security, Medicare, and food stamps are, in spite of being called entitlements, are not in fact constitutional entitlements. These programs exist because congress wrote laws creating these programs and congress can write laws to modify or eliminate them.

The purist are correct in what they say. However, what do you think would happen if one day the Social Security checks don’t go out, the Medicare bills are not paid, and there are no more food stamps? Do you think people might react violently? How might are government respond in that case? Is our government already preparing for such a situation? Bill Sardi, writing for Lew Rockwell.Com, thinks he knows the answers to those questions. If you are into conspiracy theories, this one will curl your hair. The dots he connects exist. You can decide for yourself if they should be connected. For now, I will share his closing paragraph:

Senator Tom Coburn predicts a day in the near future, if the US has not already launched its own false flag operation to usher in martial law, when one of our creditor nations like Japan, that is holding over $1 trillion of US IOUs (US Treasury Bills), decides to sell them off at a discount, recognizing they will never be repaid in full by the US. Then the value of the US dollar plunges regardless of all the money printing, accounting irregularities, money laundering and release of false unemployment and inflation numbers going on in the US today.

It’s an asylum, folks, where the players play and the payers pay. When the payers decide they have had enough, all hell breaks loose.

Well, that’s what I’m thinking. What are your thoughts?