US Government Spending May Exceed 60% of GDP

Half of US federal spending is unrecorded

By Peter Diekmeyer, Canada, for Sprott Money:

US federal government spending is expected to bloat to over $4.7 trillion during fiscal 2020, according to Congressional Budget Office data released this week. However, aggressive accounting may be hiding a far worse situation.

Total spending by the Trump Administration this fiscal year may be more than double what the non-partisan CBO admits. Worse, overall US federal, state and local government spending may exceed 60% of GDP.

So calculates a Chicago-based accounting watchdog. “Government budgeting works on a cash basis,” explains Sheila Weinberg, founder and CEO of Truth in Accounting. “That enables them to leave many of their expenses and liabilities off the books.” Weinberg, a CPA who has testified before Congress and the Federal Accounting Standards Advisory Board, has been calling out shifty government reporting for nearly two decades.

“Truthful accounting is key for citizens, legislators and the press to understand public finances,” says Weinberg. “Without the right information, it’s hard—if not impossible—to make effective decisions about public policy.”

The scale of the laxness that Weinberg has uncovered is staggering. TIA data suggest that total US government debt currently tops $104 trillion when unfunded liabilities are included, nearly five times as high as the official figures suggest.

Weinberg isn’t alone. In Canada, Al Rosen, a forensic accountant and co-author of Easy Prey Investors , has long claimed that private sector investors are being “systematically swindled out of large amounts of retirement savings” due to inadequate reporting standards.

However, according to Laurence Kotlikoff, it’s governments that are setting the pace. Kotlikoff, an economics professor at Boston University, calculates that based on fiscal gap accounting, the US government owes $200 trillion more than it admits.

Bill Bergman, Truth in Accounting’s director of research, notes that while unfunded liability totals are whispered about among insiders, few analysts look at the picture from the expense side.

Bergman calculates that the federal government’s unrecorded social security, Medicare and other debts have increased by $4.7 trillion a year on average for the past decade (unfunded liabilities of $101 trillion at September 2017, less $54.2 trillion when calculated on same basis as of end of 2007, divided by 10).

Analyzing average accruals over longer periods (in this case ten years) is more informative than doing so each year, as interest rate changes (which affect the present costs of future pension and other payments) can cause large fluctuations over the short term. That total of $4.7 trillion, if accounted for properly, would be recorded each year as an accrued expense, and thus the government spending total would increase by a similar amount.

“If you take a cruise on your credit card, and pay it off over 48 months, you incur the expense when you spent the money,” says Bergman. “Governments record the amounts when they pay them out. Private sector businesses could never get away with that.”

The implications of Truth in Accounting’s calculations are staggering. For one, adding the $4.7 trillion in un-accrued liabilities to the $4.7 trillion in spending claimed by the Trump Administration brings total government spending at the federal level alone to an estimated $9.4 trillion. In other words, half of the federal government’s spending is kept off the books.

It gets even more interesting.

The $4.7 trillion in unrecorded expenses that Bergman estimates occur each year, equated to nearly 23% of America’s $20.1 trillion US GDP in 2018 (CBO, budget and economic outlook: 2018 to 2028, page 44).

According to the OECD, total US public sector spending as a percentage of GDP hit 37.6% as far back as 2015. If you add Bergman’s unaccrued expenses total to that number (23% of GDP), this suggests that current US public sector spending accounts for more than 60% of GDP.

A US economy in which public sector spending accounts for more than 60% of GDP can hardly be called free market-based in any sense of the word. That’s a higher total than even socialist France, where government spending comes in at 56.7% of GDP, though Bergman cautions that the French total may also be understated.

While shifty accounting practices are preventing the public from assessing the true picture, the facts appear clear. US federal, state and local governments are quietly eating up the lion’s share of the country’s output. By Peter Diekmeyer, Canada, for Sprott Money

These dang trillions are flying by so fast, they’re hard to see. Read…  US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion 
 

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  49 comments for “US Government Spending May Exceed 60% of GDP

  1. Chris
    Apr 12, 2018 at 4:30 pm

    According to the Treasury’s 2017 Financial Report of the US Government, the “total present value of future expenditures in excess of future revenues” is $49 trillion in addition to the federal debt.

    And the Treasury #’s seems to understate the issue…as noted in your article.

  2. Apr 12, 2018 at 4:52 pm

    There is no force on this planet sufficiently strong to stop, or even reduce this lunacy. History proves this, and the incompetent leadership we have in all Federal government agencies, elected and appointed, assures its indefinite continuance.

    As has been stated in this column, many times, this will continue until it cannot.

    I sort of quoted Ayn Rand yesterday saying this, “One can ignore reality, but not the consequences of ignoring reality.”

    Yet my prescription is to totally ignore this foolish reality show, really, TOTALLY IGNORE IT, learn what you must to survive, and prepare as much as possible for the aftermath. I advise ignoring it, because the effort to fight it, or the angst that comes from a losing battle, is not worth the effort, since fighting this is futile !

    For those whose philosophy and analysis comes to this conclusion, “No problemo!” — well, those lucky souls have so much less preparation to undertake.

    • Bookdoc
      Apr 12, 2018 at 6:47 pm

      Don’t remember which economist said it (or possibly was credited for it) but the saying was “a thing which cannot go on forever will not go on forever” and I try to stay cognizant of it!

      • Peter Diekmeyer
        Apr 12, 2018 at 8:28 pm

        Herbert Stein.

      • Gibbon1
        Apr 13, 2018 at 12:36 am

        Engineers have a saying which is against neoliberal economics[1].

        Anything that grows exponentially eventually won’t.

        [1] Neoliberal economists measure growth in ‘percent’

      • B Fast
        Apr 13, 2018 at 12:26 pm

        Thanks for the quote. I saved it in my favorites. Stein’s exact quote is, “If something cannot go on forever, it will stop.”

    • Mel
      Apr 13, 2018 at 9:55 am

      …“The more you can escape from how horrible things really are, the less it’s going to bother you…and then, the worse things get.”
~ Frank Zappa

    • Tom T
      Apr 13, 2018 at 11:48 am

      Robert_D,

      Thank you Sir for your inclusion of the Chris Hamilton post. You have elevated my perspective with your commentary. Growth in wisdom so priceless.

    • B Fast
      Apr 13, 2018 at 12:21 pm

      “There is no force on this planet sufficiently strong to stop, or even reduce this lunacy.” I don’t believe you are correct. However, the only force I can see is called default. It will result in weeping, wailing, and gnashing of teeth.

  3. Rates
    Apr 12, 2018 at 6:05 pm

    Since this article is from Sprott Money, the obvious question is “Got Gold?”

    • hendrik1730
      Apr 12, 2018 at 6:38 pm

      Defendable. Even when it comes from “Sprott”.

    • B Fast
      Apr 13, 2018 at 12:28 pm

      Yup I do. Real, touchable gold. I also have a paid for home, a large garden, silver coins, and a bitcoin just in case.

      • wotan
        Apr 13, 2018 at 9:35 pm

        no alcohol or cigarettes?

  4. LessonIsNeverTry
    Apr 12, 2018 at 7:03 pm

    Sounds like an excellent reason for the 30 year treasury to be at 3.04%!

    • rhodium
      Apr 12, 2018 at 9:58 pm

      Yeah, it should be way higher, but that’ll require a huge crisis of faith. Who knows, maybe it’ll spike yet, but then again the fed is dumb enough to try negative interest rates come next recession but that might be a couple years out so I’m hoping the 30yr yields spike soon… Otherwise it’s like what, buy puts and gold?

  5. Kean W. Stimm (KWS)
    Apr 12, 2018 at 7:08 pm

    Stanley

    4/12/18

    When are we going to acknowledge that GDP is a total fraud?

    Government spending is added to gross income, it should be subtracted.

  6. Kye Goodwin
    Apr 12, 2018 at 7:45 pm

    “US federal state and local governments are eating up the lion’s share of the country’s output.” Eating up? I’ll bet most road builders, school teachers, firemen and soldiers don’t think of their efforts as eating up the country’s output. They get paid by government to create the country’s output.

    • fajensen
      Apr 13, 2018 at 3:36 am

      That’s the stain of the “Government as a Business”-thinking*!

      In business, if you are not in either Sales or in Management, you are just Overhead. That’s it.

      It is a totally irrelevant and invalid, communist even, line of thinking that there would be no sales without products or shipping and no profits without payments being processed. Booring!! Non-Core and Ripe for Outsourcing all these things are!

      *) possibly one of the worst “revolutionary” thoughts anyone has had had in this century although the neo-con “Neighbour to the Beast-plan”: “Seven Wars, Seven Countries in Seven Years” is also a worthy contender.

      • DV
        Apr 18, 2018 at 4:25 am

        It does look like US GDP includes a lot of double counting, when expenses are added instead of being substracted. Such creative accounting helped to keep a few companies afoat for while. It is going to be a little bit longer with the government. The question really is what is going to expose this to the point that there is a real collapse in faith.

        • Apr 18, 2018 at 8:29 am

          GDP only measures the flow of money – when money changes hands.

          Everything that is “spent” by consumers, businesses, and governments is necessarily an “expense” for them, but these items are the core of GDP (flow of money). And everything that is invested (not in stocks but in buildings, equipment, etc.), at the moment the investment is made, adds to GDP (flow of money). GDP also takes into account imports when they’re paid for (subtracted from GDP because money leaves the country) and exports when the money is received. Flow of money is all GDP counts.

          GDP does not take into account where this money comes from (debt capital v. equity capital, etc.)

  7. Lee Blockchain
    Apr 12, 2018 at 7:48 pm

    Sadly businesses can play the game also, like goodwill and intangible asset numbers are pulled out of their rear.

    • Apr 15, 2018 at 1:31 pm

      > Sadly businesses can play the game also, like goodwill

      Goodwill is legit accounting, albeit euphemisitc.

      Goodwill is “the amount we overpaid for thing we bought, compared to if it had been sold off in tiny pieces at auction and we bought the pieces one by one”. That’s why it’s tracked. The only sleazy part is the happy-sounding name given to the ledger entry.

  8. jest
    Apr 12, 2018 at 9:25 pm

    Wait until they start handing out free money! $1000 per month for every person 18-68 years old. IT jsut doesn’t seem to matter how much money is spend and printed here or JApan or anywhere! Somethings gotta bust somewhere I would think..but i been thinking for a long time … and no catastrophe at all yet.

    • Silly Me
      Apr 13, 2018 at 8:04 am

      UBI is not going to be free.

      Those accepting free money will have to relinquish even the little control they still have over their lives and, worse, will have to offer something in return.

      I just hope, I will still have the liberty of turning it down.

    • elysianfield
      Apr 15, 2018 at 6:37 pm

      “Wait until they start handing out free money! $1000 per month for every person 18-68 years old.”

      Jest,
      Well…what of us “useless eaters” over the age of 68? Seems entirely arbitrary.

  9. raxadian
    Apr 12, 2018 at 9:31 pm

    At this rate Goverment shut downs should start happening six months a year, that means two weeks shutdowns by month.

  10. Ishkabibble
    Apr 12, 2018 at 11:16 pm

    So what’s the true budget deficit and, most importantly, just exactly HOW is it being “financed” — by the Exchange Stabilization Fund, perhaps?
    https://www.newyorkfed.org/aboutthefed/fedpoint/fed14.html

  11. B. Hunt
    Apr 13, 2018 at 12:08 am

    Although, I do agree these unfunded liabilities in Social Security and Medicare should be tabulated and considered, I think it is also at least somewhat unhelpful to compare them to GDP. The way GDP is calculated, unaccrued expenses incurred by the federal government or any entity would never be included in the GDP. I should think it is more informative to compare GDP to cash or near-cash (and yes, “near-cash” is a real GASB [Gov’t Accounting Standards Board] term). At the very least all of the unaccrued expenses should be added on to GDP before calculating them as a percent of GDP. All that aside, the article does a much-needed job of raising awareness of the divergence between actual government spending and reported spending, especially at the Federal level.

    • ScottS71
      Apr 13, 2018 at 10:08 am

      is Kean W Stimm comment valid/true..

      “Government spending is added to gross income, it should be subtracted.”

      How would buying weapons go in the income column? unless they are selling all the expenses as a COGS.

      Novis and Confused.

      • B. Hunt
        Apr 13, 2018 at 1:41 pm

        His comment was very brief, so I’m not certain what he was trying to get at. That said, GDP is meant to be a metric of economic activity which is measured by calculating either expenses or income of all entities considered “domestic” for the GDP measure. If Kean is arguing that gov’t activity isn’t real activity, I think that would be a bad position. A simple thought experiment might clarify.

        Imagine a company, say Amazon, has a new office building constructed. The expenses incurred would go into GDP thru the expense incurred by Amazon. The economic activity measured her is a building that did not exist now exists. Now just substitute Amazon with the U.S. Gov’t. I don’t really see why we should not count that economic activity simply because the U.S. Gov’t or some state/local gov’t had it built instead of Amazon. So in answer to your first question, I don’t believe Kean’s comment is a good way to measure economic activity.

        Concerning the weapons, since you mentioned “income” I’m assuming you are thinking of the income method of GDP calculation. The weapons purchases would make their way into income via the wages earned by employees in the “military-industrial complex”, interest earned on debts issued by companies in the production, rents on land involved in the production, dividends (or any equity profits), depreciation on capital investments, and some indirect taxes (such as property taxes on land). Essentially the income makes its way into GDP because the Government’s expense is some private entities income.

        I hope that helps!

        • ScottS71
          Apr 13, 2018 at 11:33 pm

          Thanks for your detailed view and example. So many people think , strip the military budget to decrease this spend and save money, however this presumably would have a significant, adverse, impact on GDP, correct? But would still lower annual expenditures

  12. Paul Morphy
    Apr 13, 2018 at 12:25 am

    The American government issue a bond so that it can fund it’s expenditure.

    Who is the biggest purchaser of American bonds? The American taxpayer/citizen is.

    If the American government welch on repaying their bonds, who suffers most? The American taxpayer/citizen does.

    Giving government more and more money to spend, is never ever a good idea. And that applies in America, in the EU, in the UK………………..

  13. Felix_47
    Apr 13, 2018 at 1:58 am

    It is easy to fix. Just slash the military budget. Over a 20 year period just reduce the military to a small self defense force. Close all the overseas bases. Stop pentagon procurement. Stop recruiting. Why is Syria a disaster? Because the government focused on the military and not on the people`s welfare. Right now government work is the only work with benefits around. Medical and military are the only stable areas offering middle class jobs with stability. Not everyone can be a programmer for Google or go to Goldman Sachs. Medical and military are basically government funded. In fact, if you considered medical (mostly a waste of money) the federal involvement in the economy is probably higher than pointed out. My kids understand that and all are focused on government jobs. The US might be more socialist than Russia was at the height of socialism.

    • Esq
      Apr 13, 2018 at 8:29 am

      Sorry but your math does not compute. The military budget wont pay the future bills if its slashed. Try that number called trillions. Its a bit more than just culling the defense budget. Try again LOL.

  14. 2banana
    Apr 13, 2018 at 3:30 am

    Wolf

    Looking at page 80 of the paper you discuss.

    I see DJT actual and projected deficits as a percentage of GDP about HALF that of obama’s for most years.

    Not ideal but maybe a step in the right direction? Especially given the weak kneed republicans in Congress who couldn’t even overturn obamacare.

  15. Kent
    Apr 13, 2018 at 5:31 am

    The economy is a flow, not a stock. Everyone really needs to understand that. This article is ridiculous.

    • Apr 13, 2018 at 7:59 am

      This article is about where this money comes from and how it is (not) accounted for. Your comment is “ridiculous.” Read the article.

      • Kent
        Apr 13, 2018 at 11:38 am

        The federal government has $0 in unfunded liabilities. The federal government always creates and spends money to meet its obligations and only taxes it back later. That makes it impossible to have an unfunded liability. We are not on a gold standard anymore.

        • Steve
          Apr 13, 2018 at 1:56 pm

          Please tell me you’ve never taken an accounting class or that you are being facetious. Because that is the only way to read your statement with a straight face.

          So the Government, who owes me a certain monthly sum, called SS, for the duration of my life is not a liability?

          Your premise that the Gov always creates money is highly dependent on someone willing to buy its paper. Think Weimar Republic finances. How did that turn out for them. The parallels are frightening.

        • Apr 13, 2018 at 2:21 pm

          Kent,

          According to your belief then, the Federal government also has no debt, and the Treasury securities are just a figment of collective imagination.

          This is MMT. It’s an economic religion. It requires a huge leap of faith, and it makes sense only to true believers. To the rest of the people who do not make this leap of faith and who do not belief in this religion, it’s just plain nonsense.

        • Peter Diekmeyer
          Apr 13, 2018 at 2:39 pm

          Hi Kent,

          You are of course correct. Backed by the power of the gun, governments can do whatever they like.

          Zimbabwe which in 2017 reissued a new currency after multiple hyper-inflationary defaults (only to see its value plunge by 95% in less than a year) is a perfect example.

          Venezuela, where it takes a wheelbarrow full of cash to buy….a wheelbarrow… is another perfect example.

          *****

          Your characterization (of course) provides a close approximation of the eventual end state of Modern Monetary Theorist doctrine.

          That said, for now MMT proponents* continue to believe that governments can have debts and unfunded liabilities (in fact these are listed as such in the annual Financial Reports of the US Government).

          However, as the Truth in Accounting folk suggest, it does look like we are getting close to a time when these will are possibly unsustainable and thus will be monetized.

          Many thanks for your comments.

          Peter D.

          * Including the US federal government, the Federal Reserve and almost all mainstream economics academics

        • Paul Morphy
          Apr 13, 2018 at 3:35 pm

          Kent, try to think of it this way.

          A government starts 1st January. Government needs money to pay school teachers, fund medical services, pay social welfare before 8th January, 15th January, 22nd January……………..

          The government has two choices. One choice is to issue a bond at 1st January and get funds immediately to pay the bills due 8th January…….. The other choice is for the government to wait for taxes to be filled and paid, and use that tax to pay the bills which are due.

          It is clear which choice needs to be made so that services are paid for on time.

          The government is always in catchup mode.

          Govt. issues a bond, Govt receives funds in exchange for those bonds, Govt uses those funds to pay for services. Govt hopefully collects sufficient taxes later to repay the bond (and bond interest) later.

          The problem for most, if not all, western governments, is that they have allowed deficits (deficits between what they spend and what they collect in taxes) to accumulate every year. All of these annual deficits cumulatively become government/national debt.

    • Debt up the Wazoo
      Apr 15, 2018 at 1:35 pm

      Kent, how many drinks have you had?

      • Rvette454
        Apr 16, 2018 at 12:42 am

        Actually, Paul Murphy’s example is full of holes. For this new government to issue a new bond, repayment in some relavent form would be the new governments new currency, which is the current form of payment for T-Bills or something else of value to the purchaser, gold for instance, which no longer is the case since 1971. The currency that the government receives at the time that the bond is sold, leaves the currency supply and can no longer be used for any payment other then the payment to the bond holder upon maturity of that issue. Many people buy the bonds as the most secure investment in a savings account, if you will. Again, how could the example have any real term if the bond issued supposedly to fund government spending must be paid for with the same currency that the government issues? Our first national currency’s were created by law, out of thin air by law of government, backed by nothing but trust in that government, no borrowing was involved. To think that today is any different begs a better explanation from Wolf or the readers.

  16. walter map
    Apr 13, 2018 at 12:50 pm

    Don’t look now, but 233 Members of Congress vote last night to steal Social Security’s $2.9 Trillion surplus. You knew they would.

    https://www.socialsecurityworks.org/2018/04/12/politicians-steal-social-security/

    Once again, reducing the American people to destituion and serfdom, one step at a time.

    Good luck with your retirement. Try doing what they do in Haiti and acquire a taste for dirt cookies.

  17. JasonB
    Apr 13, 2018 at 3:58 pm

    At least France has good roads, bridges, airports, education and healthcare. what do we have, zilch.

  18. Andrew
    Apr 14, 2018 at 1:34 am

    How can an article about US debt not mention the biggest, most useless, and most dangerous expense? Not ” social security, Medicare” or local governments. I’m talking about the US military, the Pentagon. It’s about time we named these scoundrels for wasting tax dollars.

  19. ashoksinghania
    Apr 14, 2018 at 3:00 am

    wrong w to look at econcomy. central govt defecit is net new money added to the system. states and local govt are currency users. hence central govt must spend more the above two local govts.here lies the problem.central govt never pay backs hence it s debt doesnt matter.

    • Robert3
      Apr 17, 2018 at 1:18 am

      Central government spending adds new dollars to the economy, selling bonds to match that dollar amount is private savings that is returned with interest. Private bank lending also adds new dollars to the economy, must be paid back and leave the economy.

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