If the following article is true, then we are in serious trouble. Can any of
you economist pros read and comment please?

It is hazardous to your financial health to not understand the mechanisms of
fiat money as well as the central planners who operate these schemes. Fiat
systems have always failed historically, and this one, centered on the U.S.
dollar, is stretched beyond previous imagination. Most will be devastated
when it inevitably crumbles.

But you do not have to be.

Last week we looked at some of the tricks the Feds use to prevent their
subjects from seeing the reality of their ongoing monetary abuses. The
website and newsletter at www.shadowstats.com portray a much more reliable
Consumer Price Index calculation than what typically comes your way.

This week we'll delve into other accounting trickeries and the absurdity of
ongoing government promises. I'll also present a perfect but little
considered solution for these abuses. Shockingly, it's two presently
out-of-favor natural resources that can fortuitously turn the situation
around!

Let's first look at many claims over the recent decades of "balanced
budgets." Truth be known, there hasn't been one since before the years of
the Johnson Administration and their lost war on poverty. It has only been
through accounting gimmickry that any semblance of fiscal restraint has been
paraded.

As mentioned last week, Social Security surpluses have long been pilfered,
spent, and not accordingly accounted. The last 11 administrations,
regardless of political party, have perpetuated this blatant fraud. This
fact alone blows a hole wide open in the current administration's claim to
the present projected deficit being "only" in the range of $300
billion.

If budgets were balanced or actually showed surpluses, it would show in the
national debt figures. Take a peek below. See any balance or surpluses? Any
trends?

In reality, you could have a year or so of balanced budgets and still see
the total debt climb higher due to accumulating interest on the debt. Trust
me, there have been no balanced budgets.

Nine trillion dollars of red ink is a lot of money for an economy with a
total GDP of $13 trillion. Unfortunately, that's just for starters. There
are other obligations U.S. pols have committed to that have even less chance
of ever being paid. They are better hidden than even the official national
debt figures.

Let's look at accounting methods and simplify them as much as possible.

The government has used a cash basis system for decades. This system tracks
only annual cash revenues and expenses. It's an annual cash flow analysis
only. The future is pretty much ignored. Under this type of accounting
method, your family could borrow millions of dollars that you could never
repay and still have your finances look good on paper in a particular year.
Future liabilities are totally ignored. You can't borrow your way to wealth,
and cooking the books won't get you there either.

A more realistic portrayal of overall financial health, either private or
public, is called generally accepted accounting principles (GAAP). Even
Enron and Arthur Anderson functioned under these more stringent guidelines.
What would happen if the U.S. Treasury operated under this more honest and
accurate method of accounting?

The government would have to include unfunded future liabilities in their
calculations - Social Security, Medicare, Medicaid, etc. Here's what John
Williams of Shadow Government Statistics says about that proposition: "The

U.S. Government's negative net worth widened to $49.4 trillion in 2005. For
the first time, total government liabilities have topped $50 trillion, and
the number is continuing to grow. The United States is bankrupt, whether the
Bush administration wants to admit it or not."

There are several important points here. Williams used the government's own
reported figures and then applied the more realistic accounting method,
GAAP, to them. We're also looking back at 2005 and nothing fiscally
responsible has transpired since then. It's considerably worse now. The debt
continues to compound and U.S. citizens are the only entities getting
serviced.

Recent reports out of Bill Buckler's highly acclaimed Privateer fingers U.S.
off-budget debts (future liabilities through promises to pay) now in the
area of $70 trillion. Add that to the official debt and we quickly approach
$80 trillion … especially if you don't finish reading this essay within the
next few days.

Let's try to gain perspective on this. We'll present a household budget run
on an annual $60,000 total income and project them to have similar debts and
obligations as the US government. Again, the U.S. GDP is $13 trillion.

Our $60,000 household would presently owe $41,500 but have made future
pledges of almost $323,000 for a total of $364,500. Five-percent annual
interest on this debt alone is $18,225. Jane and Joe would have to pay this
interest just to keep from sinking into a deeper hole.

After taxes and ordinary living expenses, exactly how much of this
household's $60,000 do you think can be spared to square this enormous
burden? Just maybe an individual family could crawl out of this pit, but it
would be exceedingly difficult. It would also require extreme discipline and
sacrifice. Please e-mail me at snowballchance-inhell@DC.org if you believe
the Feds are so inclined.

Bottom line - this isn't going to end well. These are the numbers more
typical of a third-world debtor nation than the issuer of the world's
reserve currency. Currency inflation and monetary debasement will inevitably
accelerate. No small feat there. Exchange and capital controls won't be far
behind. Gold and silver serve as safe havens for times such as these, but
they are not exactly what I was projecting as a final solution.

There are a couple of other distinctly traditional American resources that
will hopefully soon end their centuries long bear market: tar and feathers.
Get you some.

http://www.gold-eagle.com/editorials_05/mcdougal072707.html