As the world’s lone superpower and issuer of the world’s reserve currency, the United States holds a prominent position in the world. Its Federal Reserve has one of the most complete collections of economic statistics on the planet. But more financial analysts are noticing a growing discrepancy between the “Official U.S. debt-to-GDP ratio” and the “Actual U.S. debt-to-GDP ratio” (when Unfunded Liabilities and Off-Budget Obligations are added).
The credibility of governments and banks has been sorely tested by admissions of guilt in manipulating LIBOR and other important economic rates. Some politicians might try to “paint a rosier picture” for a bad economy with inaccurate statistics. The actual U.S. debt-to-GDP ratio is much higher than the official rate due to the exclusion of at least three obligations: 1) Unfunded Retirement Benefits, 2) Freddie Mac and Fannie Mae and 3) Military Spending.
Governments Have Best Access to Economic Data
All financial analysts will admit that governments have the best access to economic data due to their power, money and authority. John Williams is an independent financial analyst who reviews published government financial statements to identify anomalies. On December 22, 2010, John Williams wrote in his “Special Commentary No. 340 on Financial Statements of the U.S. Government” that [t]he latter set of numbers [on U.S. debt] reflects GAAP accounting (generally accepted accounting principles), which, at present, excludes the level of and annual changes in the net present value of unfunded liabilities for Social Security and Medicare in balance sheet and income-statement accounting.” He calculates the debt with and without these large programs included.
Besides these retirement obligations, the mortgage programs of Freddie Mac and Fannie Mae were not included in the official budget figures. Add the CIA, NSA and “black box” military spending of the off-budget list too. For 2010, John Williams calculated that the Official debt-to-GDP ratio was 94% and the Actual debt-to-GDP ratio was 529%.
Cross-Reference of Unfunded Obligations
Credit bureaus and investors must question the financial health of nations that place more “obligations” off-budget. Here is the data from “http://www.usdebtclock.org/” for cross-reference purposes on July 16, 2013:
+ U.S. GDP = $15.8 trillion
+ U.S. Official Debt = $16.8 trillion
+ “Official Unemployed” = 11 million
+ “Actual Unemployed” = 22 million
+ Gross Debt-to-GDP Ratio = 106%
Unfunded Liabilities -
+ Social Security Liability = $16.4 trillion
+ Prescription Drug Liability = $21.8 trillion
+ Medicare Liability = $86.6 trillion
+ Total for U.S. Unfunded Liabilities = $124.8 trillion
The inclusion of “Official” versus “Actual Unemployed” shows that the accuracy of other government statistics are being questioned too. The line for Social Security = $16.4 trillion is higher than the annual GDP of the entire country.
So let’s do the calculations using these figures: “Official Budget Debt” of $16.8 trillion plus “Unfunded Liabilities” of $124.8 trillion equals $141.6 trillion. Divide that by a GDP of $15.8 trillion and the result is a U.S. debt-to-GDP ratio of 896%. So now we can understand why the United States government is placing so many of its debt obligations in the off-budget category.
