Soros Bets On US Economic Collapse

[Michael Tee]

In the business world, there is one rule for everyone: generally accepted accounting principles.  Of course there is some latitude for deciding what is or is not in accordance with GAAP, but nobody except a criminal actually keeps two sets of books.  How does the government get away with this shit?  And apparently it goes on under Republican and Democratic administrations.

[Amianthus]

In the business world, there is one rule for everyone: generally accepted accounting principles.  Of course there is some latitude for deciding what is or is not in accordance with GAAP, but nobody except a criminal actually keeps two sets of books.  How does the government get away with this shit?  And apparently it goes on under Republican and Democratic administrations.

Well, long term debt (like the "borrowing" of Social Security funds, which has been going for 40 years) is reported differently under generally accepted accounting principle. It's not really considered debt until it's due, so it's not reported. The "second set" of numbers you're talking about take into account this future debt.

[Michael Tee]

Long term debt is reported on every balance sheet I've ever read, and I've probably read hundreds of them.  If the maturity date of the debt is unknown, GAAP require a reasonable estimate of maturity with an explanatory note showing how the estimate was arrived at.  Even contingent liabilities (which may or may not ever materialize) require a note to the balance sheet.

[Amianthus]

Long term debt is reported on every balance sheet I've ever read, and I've probably read hundreds of them.

From the version of GAAP used for government reporting (emphasis mine):

Since general long-term obligations represent debt that will be met by expending resources other than those considered current and available as of current balance sheet year-end, they should not be reported in governmental funds.

http://ofm.wa.gov/policy/80.20.htm

Private companies should save up to settle their long term debt, or make regular payments to satisfy it; governments, however, rely on the ability to raise taxes to settle debt, and the reporting requirements are therefore different.

[Michael Tee]

<<Since general long-term obligations represent debt that will be met by expending resources other than those considered current and available as of current balance sheet year-end, they should not be reported in governmental funds.>>


I don't even know what that means, "reported in governmental funds." 

Liabilities are reported as liabilities in a component of a year-end or month-end financial statment called a balance sheet.  Long-term debt or liability is a separate category of liability.  The balance sheet lists all assets, liabilities and equity.

The phrase "reported in government funds" is meaningless gobbledegook.  It's on the balance sheet or it's not on the balance sheet.  It's a liability or it's not a liability.  If it's not reported as long-term debt or liability on a year-end balance sheet, then somebody is fucking you right up the ass.

<<Private companies should save up to settle their long term debt, or make regular payments to satisfy it; governments, however, rely on the ability to raise taxes to settle debt, and the reporting requirements are therefore different.>>

Private companies require future revenues to settle long-term debt.  Government requires future tax revenues to settle long-term obligations.  Neither the collection of future business revenues nor the collection of future tax revenues is certain; the only certainty is that the debt is there and will fall due some time in the future.  The reason you have been given for government not reporting such a liability is pure bullshit.

[Amianthus]

I don't even know what that means, "reported in governmental funds." 

If you would have gone to the link and read, you would have been enlightened.

Therefore, unlike a private business which is accounted for as a single entity, a governmental unit is accounted for through separate funds, each of which is a fiscal and accounting entity with a self-balancing set of accounts.

[Michael Tee]

You know there is very little difference in concept between the concept you just outlined of governmental accounting and the accounts kept by large corporations with wholly-owned subsidiaries, partnerships and joint ventures.  Each of the sub-entities can keep its own set of books and the parent corp shows a consolidated balance sheet, statement of retained earnings and statement of profit and loss for the end of each accounting period.  In both the individual books of the sub-units (subsidiaries or government departments) as well as on the consolidated books of the parent company or federal government, the GAAP will still be expected to operate.  Specifically, if there are long-term liabilities in either the consolidated balance sheet or the subsidiary/gov't department balance sheet, you should be able to find the long-term liabilities whether or not they have a fixed maturity date.

The web-site is conning you and you just swallow it all down like mother's milk.  First of all, as I just explained, a private business is accounted for as a single entity but its single-entity balance sheet is effectively a summary of operations of its subsidiaries, partnerships, joint ventures, etc.  A good financial statment will be well enough organized so that you will know how and in what amounts the subsidiary operations contributed to the figures on the consolidated balance sheet.  If all that  ISN'T clear from the private company's financial statements (as, for example, it was not clear on Enron's statements) then they  are fucking with you.

Furthermore, since all the tax-paying citizens of the U.S.A. contribute their taxes to a single recipient, Uncle Sam, then Uncle Sam should not be hiding his fiscal managment (more likely mis-management) of the national assets through multiple accountings from his many departments without a consolidated financial statement indexed to the subsidiary financial statements so that the average taxpayer can read the story of his or her tax dollars in action.  That this does not happen in real life is NOT because "it isn't done that way" or "it can't be done that way," it is because you are being fucked and you (not YOU personally, but the dumb-schmuck American taxpayer) is being bilked mercilessly by the crooks that they elect to represent themselves.  There is absolutely no good reason why any government should have to keep two sets of books.  Previously, keeping two sets of books was the exclusive practice of criminals and tax evaders.

[Amianthus]

The web-site is conning you and you just swallow it all down like mother's milk.

The website is a copy of the rules as approved by the Governmental Accounting Standards Board (the governmental version of the Financial Accounting Standards Board, which approves the rules that private businesses are run under in the US). And, according to the International Public Sector Accounting Standards Board of the International Federation of Accountants, the governmental accounting standards of the US are consistent with their standards - as are Canada's (so, I'm guessing your government standards are very similar to ours).
http://www.ifac.org/PublicSector/Downloads/IPSAS_Adoption_Governments.pdf

Previously, keeping two sets of books was the exclusive practice of criminals and tax evaders.

You've heard the saying "The government arrests criminals because it doesn't like the competition"?

[Michael Tee]

I'm accepting your contention that the Governmental Accounting Standards Board (a) sets the standards for government accounting and (b) permits long-term liabilities maturing at no fixed date to be kept off the books.  For the sake of this argument, I'm not even disputing that.  But if that's the case, it is just plain wrong.  It would not be tolerated for a minute in private industry.  (Well, actually, it WAS tolerated for a lot MORE than a minute in the case of Enron and others, my real point being it SHOULDN'T have been tolerated.)

The reason you gave for this apparent deviation is that revenues can be raised to meet the liability when it falls due - - is just crazy.  Anyone evaluating a purchase of U.S. Treasury bonds would not like to be "surprised" when a new tax suddenly has to be raised to meet a maturing liability that should have been reflected in the country's books when the bonds first went up for sale.  Anyone extending credit to a borrower should know in real time what all the borrower's liabilities are, short-term, long-term, fixed maturity, no fixed maturity and even contingent.  The lender will figure out for himself how the liabilities can be met or if they can be met, and certainly new taxes would be one way of meeting them, but that's all stuff he should be told on the books.

[Amianthus]

The reason you gave for this apparent deviation is that revenues can be raised to meet the liability when it falls due - - is just crazy.

Funny, isn't that the exact reason you gave for why the Social Security system in the US won't fail? That whatever money is needed can just be raised via an increase in taxes?

And that is exactly the reason why the US government keeps "two books" as you put it - because of the Social Security "trust fund" which is held as long term bonds.

In practice, that is exactly what is done. Most people don't realize this when they vote "yes" on their local bond measures - what they're voting "yes" on is a tax increase in 30 years to cover the shortfall when the bond becomes due. Unless, of course, their county is heavily conservative ("real" conservative) like mine is; when a bond measure is voted in, they raise the taxes immediately a small amount to cover the repayment costs and actually save the money before it's due. The money to repay the bonds is recouped early and interest earned on the money saved this way is applied towards the bond, saving taxpayers money in the long run. Of course, there are editorials all the time in the local paper about how this county "doesn't use credit wisely" - the Democrats down in the cities are appalled that the county will "pay as it goes" for nearly all of it's costs, and rarely borrows any money to pay costs, and if it does borrow any it pays back as quick as possible. Most years this county not only has a surplus on it's books, it has a real surplus in the form of no debts (or only short term debt) and cash in the bank.

[Xavier_Onassis]

Soros is not betting on a US economic collapse, of course, this article is just sensationalism. He is betting that the US, fighting a war on credit with no taxes to pay for it, is a riskier bet than the EU or Japan or perhaps China, which aren't.

[Michael Tee]

Ami, you mixed up two issues - - I said, and I believe, that there's probably enough wealth in America to support whatever taxes it takes to maintain Social Security.  Just like a book-keeper who "borrows" $2,000 cash from his employer's till believes he'll be able to pay it back after the big game  on Sunday afternoon, before anyone knows it's gone.  But belief in the ability to meet an obligation doesn't justify the book-keeper's embezzlement and belief that taxes will always be sufficient to meet an indefinitely-maturing obligation doesn't justify keeping it off the books.

As an aside, the books aren't ONLY for creditors.  They're also an indication to the equity investors (or in the case of government, the tax-payers) of how well current management is handling the biz.

There's no conceivable reason for keeping two sets of books - - think about it.  There's only ONE U.S. government, isn't there?  The tax-payers don't pay their taxes to two different U.S. governments, do they?  This whole idea, not showing long-term liabilities on the books just so a surplus can be recorded, and keeping two sets of books is just atrocious.  Not a single reason you've advanced so far for it can hold water.  It's amazing that people are so easily bamboozled.  (Although when I think of how easily they were conned into the Iraq War, I guess maybe it's not so amazing after all.)

<< . . . the Social Security "trust fund" which is held as long term bonds.>>

I don't get it.  The U.S. Treasury took money for future Social Security obligations and invested in long-term bonds of other governments or businesses?  Or it bought back its own long-term bonds from their holders?  Here in Ontario, and I'm sure everywhere else, there are very strict legal limits on what investments trustees are allowed to make, and I'm pretty sure a trustee would not be legally permitted to invest trust funds in his own obligations.  What kinda long-term bonds are the trustees of the Social Security system holding anyway?  If they're holding long-term bonds of other governments and institutions, then there shouldn't be a problem, if they placed their investments wisely.  Which only time will tell.  If they're holding  their own bonds (and I really don't see how that's possible) they have a recipe for a disaster.

[Amianthus]

There's no conceivable reason for keeping two sets of books - - think about it.  There's only ONE U.S. government, isn't there?  The tax-payers don't pay their taxes to two different U.S. governments, do they?

And yet, it's apparently consistent with the way Canada maintains it's own governmental books, since both countries are listed as being consistent with the international group of accountants.

I don't get it.  The U.S. Treasury took money for future Social Security obligations and invested in long-term bonds of other governments or businesses?

No. This has been explained before. SS takes in money, and uses part of it to pay the current outflow of SS money. The rest is then "invested" in long term US treasury bonds. So, they hand that money over to the treasury, which gives them a note saying they'll repay it in 30 years with periodic interest payments (coupons). The actual money is then put in the general fund and spent by Congress, with no provision made for repaying it (other than the periodic coupon payments, which are on the budget, because they're due yearly). This is why conservatives say that the SS "trust fund" is filled with IOUs. The trust fund is, essentially, bond payments that will need to be collected later from future taxes. No provision is being made to actually save any of it¹.

¹ Well, actually, that's not true. When the Republicans came into power in '94 a "savings account" was setup that is intended to be used to repay those bonds. This savings account is filled with voluntary donations by citizens and a yearly chunk contributed by the government. However, the mandatory contribution by the federal government is tiny (I think it's on the order of 30 million or so a year) and the voluntary contributions are insignificant. The intentions are good, but followup sucks.

[Michael Tee]

<<The trust fund is, essentially, bond payments that will need to be collected later from future taxes.>>


They took in cash in a trust fund, lent it, essentially to themselves, to be spent it in other ways than what it was intended for, and took back their own IOUs (bonds) to hold in in trust for future SS recipients in lieu of the cash that had first come into the trust fund?

If I had done something like that, I'd be in a fucking jail right now.  But I can see that they will probably be able to bail themselves out by raising the taxes as required.  It's as if the embezzling book-keeper has a million-dollar trust fund or a wealthy and supportive family that will always be able to cover his defalcations.

Incidentally, the government will not have to resort to taxes to make the bond payments.  Since the bond obligates the bond issuer (the USG) to pay the bond-holder (the USG,) when it falls due the holder can forgive the entire debt.  Actually, the bond-holder can write off the indebtedness as soon as it purchases its own obligation.  Of course there will still be that pesky obligation to the SS beneficiaries - - gov't can either issue new bonds to replace the ones it wrote off, further postponing the day of raising taxes, or it can raise all of the money by (my preference) a tax on wealth.  Supplemented by more taxes on income, graduated to make the rich pay.  By that time probably most of the wealth will be off-shored anyway.

[Amianthus]

They took in cash in a trust fund, lent it, essentially to themselves, to be spent it in other ways than what it was intended for, and took back their own IOUs (bonds) to hold in in trust for future SS recipients in lieu of the cash that had first come into the trust fund?

Exactly.

Of course, the Democrats will tell you that the "trust fund" is perfectly safe, invested in safe government bonds.