It’s Time for a Diet

By James Schaefer.

In “Blotting the Balance Sheet”, (Wall Street Journal, April 26-27, 2014), James Grant reviews the book, The Reckoning, by Jacob Soll. In it, Soll highlights the fall of successful societies, and points some of the finger of blame at accounting, and the behaviors that follow.

And he lays  blame equally to companies and government.

No surprise: it all begins with the ability of companies to live within their means, or beyond them;  keeping red ink under control, or not.  His cogent point is not that we don’t have  facts.  Indeed, we do, “What we seem to lack is the willingness to face those facts and the discipline not to bend them.”

Grant’s review describes the transition from fact-based accounting to what he calls “increasingly faith-based accounting” — the transition from standard financial metrics to flattering “adjusted” financial metrics.

All of it, of course, is complicit in deluding ourselves that a problem doesn’t exist, when indeed it does.

The digital readout in New York City currently shows the public debt at $17.5 trillion.   When these pages were started, on January 1, 2010, the public debt stood at $12 trillion.  The federal government has lived beyond its means by $5.5 trillion more than it takes in as tax revenue.

That’s over a trillion dollars more each year being spent than is coming in as tax revenue.

Herbert Stein’s observation states simply, “If something cannot go on forever, it will stop.”  We cannot forever go on spending more than we take in — not as households, not as businesses, not as government.

Where do those extra government trillions come from? Initially, from buyers of public debt.  And it works because it is all based on the promise that it will be paid back, in full and on time, by future taxpayers.

Ultimately, the burden falls on taxpayers, who pay the taxes that redeem the bonds and Treasury securities.

News item: Five of the six highest per capita income counties in the United States are clustered in northern Virginia and western Maryland, around Washington D.C.

It’s time for a diet.

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