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Feds Running Out of Cash?
By Patrick A. Heller

On April 14, the U.S. Treasury Department’s Financial Management Service released its latest Monthly Treasury Statement of Receipts and Outlays of the United States Government, covering the month of March 2010 (http://www.fms.treas.gov/mts0310.pdf).

This 32-page document is a report on the U.S. government’s cash flow. As I’m sure most of you realize, the federal government has sustained huge budget deficits every month for quite some time. For the fiscal year ended Sept. 30, 2009, the cumulative deficit was $1.41 trillion, with the smallest monthly deficit coming in at “only” $20.9 billion.

For the first six months of the October 2009 through September 2010 fiscal year, the cumulative deficit is already $717 billion. The reported deficit for March 2010 was $65.4 billion.

One thing to keep in mind when reviewing these figures is that they only report cash receipts and disbursements and do not include the change in the actuarial liability for Social Security, Medicare and other such programs. The U.S. Federal Debt Clock currently shows that the “official” federal government debt is slightly less than $13 trillion. However, when the actuarial liabilities are added, the federal government is in hock more than $100 trillion dollars. If the federal government followed proper accrual basis accounting standards for its financial reporting, as is required of all public companies in the U.S., the corrected monthly and annual budget deficits would be far higher than are reported by the Financial Management Service.

The U.S. government cannot simply continue to issue greater amounts of debt to finance these deficits. At some point, creditors will realize that the value of the U.S. dollar must plummet in order for there to be any realistic prospect that the debt can be repaid. To offset this risk, creditors will demand a higher interest rate on the debt.

One way the U.S. government can postpone that day of reckoning is fudging its financial reports. On page 14 of the March 2010 report, under the list of outlays (expenditures) for the Department of the Treasury is a line titled “Proprietary Receipts from the Public.” On this line is reported a negative outlay (or income) of $117.3 billion. This undetailed item is so huge that the whole Treasury outlay, including payment of interest on the public debt, is a negative $65 billion for the month.

This one line reduced the monthly budget deficit from $182.7 billion down to the $65.4 billion reported. Such a large number deserves explanation, but none is detailed in the report. An Internal Revenue Service document defines this line as “collections from outside the Government that are deposited in receipt accounts that arise as a result of the Government’s business-type or market-oriented activities. Among these are interest received, proceeds from the sale of property and products, charges for non-regulatory services, and rents and royalties.”

I am not aware of the federal government selling $117 billion worth of property in March. What could be included in this total? Gordon T. Long, in his essay last Friday titled “Is the U.S. Facing a Cash Crunch?” speculates that this amount includes TARP (Troubled Asset Relief Program) money being returned to the U.S. government and possibly a reduction of TARP expenditures compared to budget. There were several announcements of TARP repayments in March, though nothing totaling anywhere near $117 billion.

However, if the U.S. government did receive such amounts as TARP repayments, it cannot count on that to continue every month for the foreseeable future. On Page 18 of the Financial Management Service March 2010 report, it lists total Proprietary Receipts for the first six months of the September 2010 fiscal year from all departments at $186.8 billion. For the first six months of the September 2009 fiscal year, the Proprietary Receipts from all departments combined were only $52.7 billion.

Unless there is more detail provided for this $117.3 billion dollar “journal entry” in the federal government’s March 2010 financial report, I suspect that its appearance has more to do with an attempt to mask the heightened risk that the U.S. government’s growing budget deficits.

In other words, there is an increased possibility that the U.S. government has reached the point where it is spending more money than it can realistically borrow. The State of California has already reached that point, where it is selling buildings that it owns to get the cash flow, and then leasing them back from the new owners.

If this $117.3 billion figure is more of an accounting gimmick than reality, that is just one more warning signal that the U.S. dollar is at a higher risk of a near term major drop in value. Owning gold and silver would provide some insurance against this risk.

Which would you rather hold in your hand today – an ounce of physical gold or a U.S. government bond denominated in U.S. dollars for the same value as that ounce of gold?


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