NEW YORK ( TheStreet) -- On Jan. 17, a month late and to little fanfare and even less media coverage, the U.S. Treasury Department reported the deficit was $6.9 trillion, or 46% of total U.S. economic activity for 2012, using Generally Accepted Accounting Principles. By comparison, the 2011 GAAP deficit was $4.6 trillion.
GAAP accounting is required of all publicly traded companies in the U.S. The GAAP deficit includes the present value of all of the newly promised unfunded liabilities (mainly Medicare, Medicaid, and Social Security).
The Government Accountability Office currently estimates the total sum of all past and present unfunded liabilities at $88 trillion, or nearly six times the size of the GDP. The new unfunded liabilities themselves were estimated by the GAO to be $5.3 trillion, or more than 35% of 2012's total economic activity, and the deficit, excluding these newly promised unfunded liabilities, was $1.3 trillion, more than $226 billion higher than the $1.1 trillion -- the "official" deficit estimate that is bandied about by the politicians and the media.
State and local pensions are often criticized for being underfunded. However, if such a pension is 35% underfunded, at least 65% of the assets needed to make the future payments are present. By contrast the federal government's promises are 0% funded and the payments must come out of the taxes collected in the year the payments are due.Worse, because of materiality issues, the GAO will not offer an opinion on the Treasury's GAAP financial statements. Imagine what would happen in the marketplace to the stock price of a publicly traded company that reports a loss, but upon audit it is revealed the loss is more than six times higher and the auditor won't opine because of material issues with the data. Think of the fury of the politicians and the reaction of the Securities and Exchange Commission. Yet, not a word has been uttered, nor is the real magnitude of the U.S.'s fiscal issues even acknowledged.