Modern Money Operations  

Beyond the $3.7 trillion deficit in 2003, however, the numbers get even worse, because the shadow deficit has been taking its toll ever since the Johnson era. According to the Treasury’s 2003 financial statement, the U.S. government has a negative net worth of $34.8 trillion. That $34.8 trillion reflects $36.2 trillion in financial liabilities offset by $1.4 trillion in assets, of which only $0.4 trillion are liquid.

Part of the underlying reality-the actual operating cash shortfall-is reflected in the growth of the federal debt. During fiscal 2003, for example, gross federal debt increased from $6.2 trillion to $6.8 trillion, or by $600 billion, against the unified $374 billion deficit. As of the end of August 2004, the debt had increased to $7.3 trillion.

While gross federal debt is at a record, relentlessly pushing against borrowing ceilings, the markets, press and politicians generally ignore that portion of the debt borrowed from Social Security and similar programs. So, the September 30, 2003 debt level commonly is reported as only the $3.9 trillion owed to the public, instead of the total $6.8 billion. Again, the more accurate GAAP estimate of total government liabilities is $36.2 trillion.

2004 Results

Results for the official 2004 deficit will be published in the next several months, and the numbers are projected by the Bush administration to be significantly worse than in 2003, $445 billion versus $374 billion, with the actual deficit likely to near $4.3 trillion (my estimate). The 2004 GAAP financial statements on the government will not be published until March/April 2005.

           GAAP-Based        GAAP-Based           Fiscal 

                 "Official"       Deficit Without    Deficit With      

      Year      Deficit        Soc. Sec., Etc.   Soc. Sec., Etc.    

   2004 est.   $445 Billion     $800 Billion     $4.3 Trillion

   2003        $374 Billion     $665 Billion     $3.7 Trillion

   2002        $158 Billion     $365 Billion     $1.5 Trillion

The credit markets were rattled slightly by the early official projections of an increasing shortfall in government finances, but only the surface problems have gained any market recognition. The full magnitude of the difficulties ahead is not recognized by the markets, yet.

With 2003 gross domestic product (GDP) (annual average for the government’s fiscal year) at $10.83 trillion, that places the annual budget deficit and total government obligations at respectively 34.2% and 334.3% of GDP, negative extremes never before breached outside the environment of third-world, net-debtor nations.

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