Government Lies = Lawsuit?


Government Lies = Lawsuit?

Posted by Karl Denninger

Now here’s an interesting idea….

BRUSSELS, Jan 12 (Reuters) – The European Commission is likely to launch infringement proceedings against Greece for failing to provide reliable statistics on its budget deficit and debt, an EU source with knowledge of the proceedings said on Tuesday.

What, governments lie about economic statistics?

Gee, what have I (and others) been talking about for a few years now?  Or maybe a few decades?

Let’s see…. we don’t count anything that might show inflation in the inflation statistics, we back $5 trillion+ of Fannie and Freddie debt with the Treasury but don’t count that as debt on the balance sheet, and we have some $70 trillion of unfunded liabilities (on a discounted perpetual cash flow model) in Medicare and Social Security but don’t count that either!

Oh, and we count debt in GDP, making the (false) claim that our economy (on balance) is benefiting from the use of debt to pull forward demand and finance consumption (or worse, ponzi-style speculation), even though if you go to the bank and take out a $20,000 loan you’re not one penny richer than you were five minutes earlier.

The EU has scant room to complain about this.  There’s not one nation under their umbrella that holds their government liabilities (that is, the social promises they’ve made) nor the backstops they’ve taken for their banking institutions on balance sheet either!

If any private company CEO or auditor pulled this sort of nonsense they’d wind up in prison. 

I find the concept of complaining about accounting “irregularities” particularly odious when it comes from somewhere like the EU, while they’re doing the same thing at the same time, exactly as the US and every other major government has and does.

Before one raises such a complaint there should be a requirement that they restate their own balance sheets on a GAAP basis.  Were we to do this, of course, bond buyers would recoil in horror at how the disappearing paint had worn off the elephant that has been standing in the room the whole time.

After all, if you look at the United States alone with its bloated social spending promises you’d find that we have about $100 trillion of liabilities and yet the total tax base on which the government can assess for revenue is about $14 trillion annually (GDP.)  If you assume that the government could, at best, siphon off perhaps 15% of that without completely collapsing final consumer demand (remember that some 30% of GDP IS government spending, so you have to be careful here!) you find that they’re trying to finance $100 trillion in debt with $2 trillion in revenue.  Hmmm… how’s that going to work out again exactly?