The first thing President-elect Barack Obama should do to get the economy back on track is publicize the financial record of the Bush Administration. Every business knows that "if you can't measure it, you can't manage it."
Auditing the books is standard practice because CEOs want to know where they stand financially. And no one wants to be blamed for the mistakes of prior management. If the public learns about President Bush's mismanagement after he is safely back in Crawford, Texas, the bad news could cripple the Obama Administration. People blame the messenger.
Fortunately, such an audit will be released on December 15th. It is the Financial Report of the U.S. Government, issued by the U.S. Treasury and signed by Secretary Henry Paulson. It is the only official government document that uses audited, accrual accounting to describe America's financial position.
It is also one of Washington's best-kept secrets. Neither Bush nor Paulson has mentioned it publicly because it reveals national deficits and debts that are much larger than the public has been told. The media have unwittingly participated in the cover-up.
Last year's Report said that the true national debt or "fiscal gap" was not $4 trillion, or even $9 trillion, but $53 trillion. Understanding the difference between these numbers is vital. Does America have a bad cold, the flu, or is it cancer?
We owe $4 trillion if you don't count the $5 trillion that the federal government has already borrowed from the Social Security "trust fund." Many economists say that you don't need to count intra-governmental borrowing, and politicians love the smaller figure. But seniors will demand their full Social Security checks. To protect them, we must recognize that we have borrowed the full $9 trillion.
Even the $9 trillion figure is misleading if you add this year's bailouts and war expenses. The official U.S. debt ceiling was recently raised to $11.3 trillion. In addition, Medicare is facing a shortfall of $30 trillion that the usual Washington budgets fail to recognize. This, plus other entitlement program shortfalls, means that our true fiscal gap is $53 trillion. And that is a "present value" number, meaning that we need $53 trillion today earning interest so that we can have even more money for the benefits that have been promised.
Is your individual share of the national debt $30,000 or $175,000? The Financial Report lays it out in the same annual-report format used by public companies. You get your favorite company's annual report; why not your favorite country's?
The Bush Administration does not want you to know that it borrowed more money in the last eight years than all U.S. Presidents combined had borrowed in the previous 219 years. It also borrowed more money from foreigners that all previous Presidents combined.
The demands of retiring Baby Boomers are not Bush's fault, but his administration has a dismal record there as well. The Financial Report says that our fiscal gap was $20 trillion at the beginning of the Bush Administration but $53 trillion today, a whopping $33 trillion increase.
The annual federal budget deficit is not a few hundred billion dollars but closer to $2.5 trillion if you count the rate at which our entitlement obligations are increasing. The problem is metastasizing at a rate almost ten times faster than the Bush Administration admits.
The financial outlook for the federal government is so grim that the two top credit rating agencies on Wall Street, Standard & Poor's and Moody's, are projecting that the U.S. Treasury bond itself could lose its AAA rating by 2012. This means an increase in interest rates that could damage the economy.
Congress has been busy applying band-aids to these gaping wounds. For example, Medicare needs $5 trillion today in order to pay doctors what they are accustomed to receiving. Uncle Sam doesn't have that kind of money, so Congress is applying six-month or one-year patches that do nothing to solve the problem. For several years, the Bush Administration has not even tried to save physicians -- a core Republican constituency -- from a projected 42% pay cut.
We are running out of band-aids, and our fiscal sickness is spreading. The financial legacy of the Bush Administration cannot be denied. The only question is who will tell the public the truth, and when.