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The US Government’s Financial Report

The best time to announce bad news without making any waves is to do it when no one is listening. So that’s exactly what the Treasury Department did.

On December 23rd, on the cusp of a holiday weekend, the Treasury Department published the 2011 Financial Report of the United States. The report came just two days after Fitch’s issued another warning about the US government’s “high and rising debt burden” that is “not consistent with the US retaining its AAA status”. But no one took notice of the 254-page report, or its troubling contents.

To keep things on a positive note, the report was quick to tell us that the FY2011 budget deficit was “essentially flat” at $1.3 trillion. But it was still the third largest shortfall in the past 40 years.

But that’s it for ‘good news’. The federal debt (securities held by the public and accrued interest) increased to $10.2 trillion. And the government owed $5.8 trillion to federal employees and veterans. And intragovernmental debt outstanding was $4.7 trillion.

That sounds bad enough…but altogether, the Treasury estimates that the government’s total indebtedness is something like $51.3 billion…that is five times the national debt.

But what is important is a government’s debt relative to the country’s economic growth. That’s where we can see just how unsustainable the debt is. According to the report, the ratio of the government’s debt held by the public to GDP was 68% in 2011… the highest level in the past forty years.

And based on the current policy, by 2022 it will be over 76%. In 2042 it will be 125%. And in 2086 it will be 287%.

The idea that the debt could reach 287% of our economic growth in 75 years is even worse when put in historical perspective: over the past 40 years, the debt to GDP has averaged 38%. That is a problem that we can’t fix if we can’t move beyond what economist Bruce Bartlett aptly calls our “budgetary myopia”.

A little strategic timing on the release of the Treasury’s report made sure that it got lost in the commotion of a holiday weekend. It didn’t make the numbers less bad, and it didn’t make the outlook less ugly.

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