December 13, 2013
Open Letter to:
The President of the United States of America
The Congress of the United States of America
Harry Reid Senate Majority Leader
John Boehner Speaker of the House
Ben Bernanke Outgoing Federal Reserve Chair
Janet Yellen Incoming Federal Reserve Chair
Paul Ryan House Budget Committee Chair
Patty Murray Senate Budget Committee Chair
Tom Coburn U.S. Senator (R) Oklahoma
Erskine Bowles Co-Chair, National Commission on Fiscal Responsibility and Reform
Alan Simpson Co-Chair, National Commission on Fiscal Responsibility and Reform
David A. Vaudt Chairman Government Accounting Standards Board
Jim Cramer Television Personality-CNBC
David Faber Television Personality-CNBC
Joe Kernen Television Personality-CNBC
Larry Kudlow Television Personality-CNBC
Steve Liesman Television Personality-CNBC
Rick Santelli Television Personality-CNBC
Andrew Ross Sorkin Television Personality-CNBC
Neil Cavuto Television Personality-FOX Business
Lou Dobbs Television Personality-FOX Business
Rush Limbaugh Radio Personality
Doug Casey Economic Newsletter-CaseyResearch.com
George Friedman Global Intelligence Newsletter-Stratfor.com
Michael Tanner Senior Fellow-Cato Institute
John Mauldin Financial Newsletter-MauldinEconomics.com
John Williams Financial Newsletter-ShadowStats.com
Robert Shiller Nobel Laureate in Economics
Paul Krugman Nobel Laureate in Economics
Jeremy Siegel Economics Professor-Wharton
Laurence Kotlikoff Economics Professor-Boston University
Gerard Baker Editor-in-Chief Wall Street Journal
Scott Burns Newspaper Columnist-Dallas Morning News
Will Deener Newspaper Columnist-Dallas Morning News
The action taken this week by Congress to address our fiscal deficit and debt was a positive but minuscule step in resolving our fiscal dilemma. By my calculation it addressed about 1/100th of 1% of the problem. It will, as I understand it, reduce our Cash-based deficit by about $22 Billion this fiscal year when our Fiscal Gap is $205 Trillion. I too am encouraged that we got bipartisan agreement but it was essentially an agreement to do nothing right now but just delay the decision for 2 more years. Meanwhile we have a Cash-based debt of $17.2 Trillion, a GAAP-basis Obligation of $91 Trillion and a Fiscal Gap of $205 Trillion. Because we are using Cash-based financial assessment and reporting we do not appreciate just how serious the fiscal situation really is.
I feel that this problem is so severe that it must be addressed as soon as possible by the Congress. I realize that the actions that we will be required to take to resolve it will be very difficult politically and will have major impact on the U.S. and global economy but I also feel that we have no choice but to face both of these challenges. I have been analyzing this problem (via www.usaponzi.com) by looking at our fiscal status through the lens of GAAP-basis accounting and have been able to assess the dramatic distortion that Cash-based accounting is causing for our economy. However I feel that we can gain even more insight into the financial commitments that we have made by adopting fiscal gap accounting as it gives an even more complete and comprehensive assessment of our financial health.
The www.usaponzi.com website includes a downloadable interactive spreadsheet fiscal model that projects our financials for the next 10 years. This model shows projections for our Cash-based Deficit, our GAAP-basis Deficit, our Federal Debt, and our Federal Obligation. This website also includes a page that gives a very basic description of the differences between Cash-based accounting, GAAP-basis accounting, and Fiscal Gap accounting.
There is now an effort underway to bring a bipartisan bill (the INFORM ACT) to Congress that proposes the use of fiscal gap and generational accounting for assessing and reporting our fiscal health.
The INFORM ACT is a bipartisan bill introduced, in the Senate, by Senator Kaine (Democrat from Virginia) and Senator Thune (Republican from South Dakota) and co-sponsored by Senator Coons (Democrat from Delaware) and Senator Portman (Republican from Ohio). Congressman Cooper (Democrat from Tennessee) and Congressman Shock (Republican from Illinois) have introduced the bill in the House.
The INFORM ACT requires the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap and generational accounting on an annual basis to assess the sustainability of fiscal policy and measure, on a comprehensive basis, the fiscal obligations facing our children and future generations. The ACT also permits Congress to request fiscal gap accounting and generational accounting to evaluate major proposed changes to fiscal policy.
This website (www.theinformact.org) provides information regarding this act.
Making a change of this magnitude in our financial reporting will require significant endorsement of the need for the change by distinguished stakeholders and thorough education of the citizenry. This website has already started that process by getting the endorsement of over 1000 economists including 15 Nobel Laureates in Economics.
We have a U.S. Economy that is riding on the full faith and credit of the Federal Government and we are essentially in debt by $205 Trillion with an income stream of currently about $2.8 Trillion per year to both pay our current bills and to service that debt. Our current Cash Accounting methodology does not appropriately reflect the magnitude of this current liability. As is evident by this assessment the "virtual interest" on our "virtual debt" is more than twice as big as our "real" income.
The further complication will be that by taking the actions necessary to resolve this issue we will dramatically reduce that real income stream. But we really have no choice as we must assess and report properly before we can truly fix the problem.
This problem must be communally accepted by Congress and the U.S. citizenry but prompt action by Congress to consider and approve the INFORM ACT is essential to getting the United States of America on a sustainable fiscal path.
John W. White
Retired Information Technology Executive