Last week, two federal government entities produced financial reports. The Treasury Department issued the latest annual (FY2022) Financial Report of the United States Government (FRUSG), and the Federal Reserve Board of Governors issued its weekly H.4.1 report on the financial condition of the Federal Reserve Banks. These reports deserve closer scrutiny by citizens and taxpayers.
Treasury Secretary Janet Yellen introduced the FRUSG with a traditional “Message from the Secretary of the Treasury.” Yellen’s message laid claim to much broader responsibilities than one might think appropriate for a report on the government’s finances.
Yellen opened with a paragraph describing positive trends in the overall economy, including how “the American economy continued its historically strong recovery from the pandemic amid serious global economic headwinds …” Again, this is a report describing the finances of the federal government, not the economy. The report theoretically secures accountability for government stewardship, or lack thereof, in the dollars it takes from citizens by force in taxes, or those it borrows on the backs of future taxpayers.
Yet Yellen chose to emphasize claims for the federal government’s responsibility for the (growing) overall economy -- not how well it managed the public purse. She went on to identify three specific laws passed by Congress and signed by the President she deemed responsible for strengthening “American” economic growth over the long-term. One of them was the “Inflation Reduction Act,” which she called:
… our nation’s most aggressive action to tackle the climate crisis, while also providing funding for fairer enforcement of our tax code and improved taxpayer service.
Her opening message didn’t identify how the “Inflation Reduction Act” would reduce inflation, however.
More importantly, she didn’t discuss how the laws she advertised mattered for the federal government’s financial performance – the key reason for an annual financial report in the first place.
Following these opening claims, Yellen asserted that the report serves as a “comprehensive view into our nation’s finances and economic outlook.” Consider the possibility of a dangerous extension of authority underneath this “comprehensive view.”
The report looks not at our federal government’s finances, but at “our nation’s finances and economic outlook.” If Yellen considers financial accountability to include not only accountability for the federal government’s finances, but the finances for all of us, what happens to the nature of private property? How about popular sovereignty?
Yellen then provided some brief (and selective) observations on results in the report, including “a decrease in the federal budget deficit.” Unfortunately, this decrease was to a deficit of $1.4 trillion, a still-negative-result and a rate of deterioration in government’s financial position more than 50% worse than the three years before the arrival of COVID and associated government spending responses.
And while focusing on the budget deficit, Yellen chose not to report on the more-economically-meaningful result in the accrual accounting measure called the “net operating cost.”
Take a look at the summary chart below, from p. 3 of the 250+ page report, showing the cash-accounting-based “budget deficit” and the accrual-accounting-based “net operating cost” over the last five fiscal years.
The trend in the red bars (the budget deficit) is much easier to see than the trend in in the white bars (the net operating cost). But the net operating cost trend is distinctly unfavorable, on closer inspection.
In closing her introductory message, Yellen repeated an alarmingly broad claim of responsibility for the scope of the federal government’s accountability:
It is my duty and pleasure to present the Fiscal Year 2022 Report to the American people, which demonstrates the government’s steadfast commitment to accountability and transparency in managing the nation’s finances.
The government’s (possessive “s”) “steadfast commitment” apparently relates to its role in managing the nation’s finances – not only the federal government’s finances. And an alarmingly possessive “s” continues to appear in another context later in the latest annual report.
On p. 65, in the financial statements section, the report includes an overall balance sheet for the federal government. Assets fell short of reported liabilities by about $30 trillion in FY 2021. In the latest fiscal year, that shortfall mushroomed to $34 trillion -- a $4 trillion deterioration far in excess of the budget deficit strategically emphasized by Yellen in her opening message.
Introducing the unbalanced balance sheet, the report delivers (on p. 55) the following comforting words:
There are, however, other significant resources available to the government that extend beyond the assets presented in these Balance Sheets. Those resources include stewardship PP&E in addition to the government’s sovereign powers to tax and set monetary policy.
The government should be OK, the implication goes, despite the picture in the Balance Sheets, given the government’s “sovereign powers to tax, and to set monetary policy.” The government can take away the money of the people, or inflate the value of their money away.
This report theoretically secures financial accountability of the government to We The People – the real sovereign, in our United States. Yet the government claims to possess the sovereign power to tax the People to assuage any concern for its unbalanced balance sheet.
Yes, our government has the power to tax. But does it possess, as an entity reporting to We The People, the sovereign power to do so? Isn’t our nation grounded in popular sovereignty? Do we have to bend and bow to our Sovereign?
And speaking of the “sovereign” power to set monetary policy, what about the other report that came out last week – the Federal Reserve Board’s weekly H.4.1 report on the financial condition of the Federal Reserve Banks?
A longer story, but in a single week, we had a $3 billion increase in a curious negative liability called “earning remittances due to the U.S. Treasury.” Granted, it’s only one week, but that’s a big chunk of change on an annualized basis. These are effectively financial losses in the Federal Reserve Banks whose financial statements are not consolidated in the Federal Government’s overall financial statements.
More to read, and report on, in the days ahead.
