The US government just published its audited financial statements a few days ago. They are signed by Treasury Secretary Jack Lew.
These reports are intended provide an accurate accounting of government finances, just like any big corporation would do. If our government was a corporation, this report would be followed by SELL signals or the Grade of F.
The US government’s financial condition has declined significantly from the previous year.
For 2015, the government reports $3.2 trillion in total assets.
This includes everything from financial assets like bank balances to physical assets like tanks, bullets, aircraft carriers, and the federal highway system.
Curiously, the single biggest line item amongst these listed assets is the $1.2 trillion in student loans that are owed to the government by the young people of America.
This is pretty extraordinary when you think about it.
37% of the government’s total reported assets are student loans, which is now considered one of the most precarious bubbles in finance.
$1.2 trillion is similar to the size of the subprime mortgage market back in 2008. And delinquency rates are rising, now at 11.5% according to Federal Reserve data.
It is astonishing that so much of the federal government’s asset base is linked to the ability (or non-ability) of largely younger people pay off expensive university degrees that barely land them jobs flipping burgers (for the few that even choose to work).
On the other side of the equation are a reported $21.5 trillion in liabilities, giving the government an official net worth of negative $18.2 trillion.
This is worse than last year’s negative $17.7 trillion and $16.9 trillion from 2013. It just keeps getting worse.
But there’s one thing that’s even more incredible about all of this.
You see, each year these financial statements are audited by the government’s in-house agency known as the Government Accountability Office (GAO).
All big companies do this. They publish financial statements, which are then reviewed by an independent audit firm.
Auditors are a critical component of the financial reporting process.
It’s their responsibility to make sure that shareholders and the public can have confidence in a company’s financial statements.
When Apple publishes an annual report, auditors go through all the books of the company and make sure that management is accurately representing the company’s true condition.
Thus when an auditor issues a failing grade, or what’s known as a qualified opinion, there’s usually hell to pay.
At the very hint of impropriety a company’s stock price will tank immediately. People get fired. SEC investigations are launched.
And now based on US securities law and section 404 of the Sarbanes-Oxley Act from 2002, senior executives can face criminal charges if their companies receive a failing grade from their auditors.
This is serious stuff.
Yet year after year the GAO gives the federal government a failing grade in its audit report of America’s financial statements.
In this latest report, not only did the GAO chastise the federal government for its “unsustainable fiscal path”, but they state that the federal government consistently fails to prepare “reliable and complete financial information-- both for individual federal entities and for the federal government as a whole.”
It gets worse.....much worse....I will write about it tomorrow..
Paddy Deighan J.D. Ph.D