Dave Sather's Money Matters: Vote American

By Dave Sather
Oct. 30, 2012 at 5:30 a.m.

A friend suggested I watch a video from the American Institute of Certified Public Accountants. Although an accountant-produced video wasn't my idea of excitement, my friend persisted.

The video made me ponder the election as it explained, in non-partisan spin, where the money goes and its national impact.

It explained that the budget is merely a guide and is therefore easy to manipulate. It is produced on a cash basis to steer Congress on spending - but only for one year.

Conversely, financial statements record what is actually happening with our nation's finances and elaborates on growing future obligations.

Although I'm not hopeful, our elected leaders must understand financial statements as they paint a picture of national income and expenses - not only now - but in the future.

Through Sept. 30, our Federal Government produced revenue of $2.4 trillion - but spent $3.7 trillion. As such, our elected leaders piled $1.3 trillion onto the national debt.

At the end of 2010, the rapidly growing net loss on our "Income Statement" amounted to $2.1 trillion.

Our balance sheet shows government assets of $2.7 trillion - but liabilities of $17.5 trillion. This leaves an accumulated deficit of $14.8 trillion. To provide perspective, this is like every U.S. citizen owing $50,000.

Financial statements should be straightforward. Unfortunately, our nation's financial statements fail to include obligations for Social Security and Medicare. These are "footnote disclosures." Although legal, it makes one wonder if former Enron accountants prepare these financial reports. These "footnote" obligations equal $46.3 trillion - but don't even make it to our nation's balance sheet.

Combining the current accumulated budget deficit with Social Security and Medicare shows total deficit obligations of $61 trillion. That means every American is on the hook for $200,000.

In comparison, the actual net worth of all American households is only $58.5 trillion. When I see this figure relative to what our nation owes, my stomach turns.

The simple math shows debts owed by the federal government are greater than the net worth of all American households. Knowing this, a logical person should ask "At what point does government spending become unsustainable?"

There is no way a business or individuals can operate this way. What makes our elected leaders think our government can?

Sadly, we are picking up speed. In 2009, the accumulated deficit was $11.5 trillion, $13.5 trillion in 2010 and $14.8 trillion in 2011. Projections for 2012 indicate a $16 trillion deficit.

Currently, we are lucky in obtaining cheap interest rates to finance obligations - but this will not always be true. Furthermore, even if rates stay artificially low - the base rate continues to increase, as do interest expenses. When rates increase - the interest expense owed on the national debt will expand geometrically.

Additionally, much of our debt is borrowed from ourselves. Because we spent beyond our means, current generations are effectively stealing from future generations.

This damages current purchasing power. As we flood the financial markets with greater amounts of debt, it dilutes the effective purchasing power of the U.S. dollar. As such, things that used to cost $1 will cost more and more, relative to other world currencies. In a global economy, we cannot have an isolationist attitude and pretend these factors don't exist.

This is a dangerous game our elected leaders are playing with our lives. Our government is artificially holding down interest rates - to the detriment of savers and fixed income investors.

Making matters worse, the traditional fixed income investor is retired. Their dollars don't buy as much as they once did - and they're not receiving a fair return from their interest component. Exacerbating matters, once in retirement, they lack the ability to replenish savings via a paycheck.

With our population living longer, the proposition of retirement is increasingly difficult.

Given this, our elected leaders must do a couple of things. They must reduce spending while stimulating growth. If all we do is cut, at some point there is nothing left to cut. We cannot kill the goose that lays the golden economic egg.

We cannot tax our way out of this situation. If tax rates are too high, then jobs and companies relocate away from the U.S.

With the election upon us, our elected leaders must represent all Americans - and not just special interests or one party to the detriment of another. Our elected leaders must make intelligent decisions for the future of our nation.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other Wednesday.



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