What with raging bushfires, a trip to the US and the Miley Cyrus pandemic, I have not posted much for a while. Here is an important piece from Keith Weiner. The whole article is here.
We believe that most people know (or reasonably should know) that the government is a profligate spender. Its spending is much greater than its tax revenues, so it makes up the difference with borrowing. It may be less well-known that, in addition to outright borrowing, the government is also making promises to pay in the future which it has no means to honor. That is, it is accruing liabilities without setting aside a corresponding asset to cover them. These are called unfunded liabilities.
Unfunded liabilities are a form of debt, though some people quibble they are not technically “debt” as Congress has the right to renege on these promises. According to an article from Truth in Accounting, published by the Foundation for Economic Education, the Federal Accounting Standards Advisory Board policy states:
“Until benefits become due and payable, there is no binding commitment over which a worker has control and so no liability can be recognized.”
We are not political prognosticators, though we believe it to be unfeasible to repeal a benefit as popular as Social Security or Medicare. Nor are we accounting experts, but we insist that accounting should describe a conservative picture of the state of an entity. If current policy says that the government must pay a dollar next year, then the balance sheet should have a liability of one dollar (minus the discount rate). It is extremely disingenuous to say just because the law could theoretically be changed, then there is no need to recognize any liability.
And by disingenuous, we mean dishonest. If a private company kept its books like this, its officers would rightly be sent to prison.
Why is it so important to state that the government has debts and promises to pay that are beyond its ability to pay? It is because the government’s debt paper is what most people call “money”! To hold a money balance, is to be a creditor to this profligate spender who keeps dishonest books.
No one should go all-in to this unpayable pile of debt paper. Not even if they think that its next price move will be up. The price of the dollar is the inverse of the price of gold. When the price of gold falls, it really means that the price of the dollar rises. For example, in the last two weeks the price of gold fell from $1,586 to $1,530. That means the price of the dollar went up from 19.61 milligrams of gold to 20.33mg.
As Goethe observed, “none are more hopelessly enslaved than those who falsely believe they are free.” And we would add, none are more hopelessly financially repressed than those who falsely believe that the dollar is money.
If you don’t own any gold, it’s always a good time to remedy this omission.