Lawyer, accountant, and “alternative asset manager” Joseph Marren explains in a Barron’s guest column how elected leaders limit our ability to gauge whether government is living within its means.

The nation’s budget deficit and debt are exponentially higher than what our politicians say they are. None of the headline figures used as the basis of public discourse have any relevance to the true state of U.S. finances.

The government’s financial reporting is misleading because our political leaders have subverted the democratic process to advance their personal interests. They have spent enormous sums of taxed and borrowed money to endear themselves to the electorate, but they do not want to be held accountable for the full extent of this spending. Hence, the legislative and executive branches collude to underreport expenditures.

In reality, the federal government’s existing legal obligations exceed $90 trillion, which is far above the carefully defined debt-ceiling limit of $16.7 trillion and is almost six times the size of the gross domestic product. The reported budget deficit for fiscal 2012 was $1.1 trillion, when a more realistic accounting would show a $5.8 trillion deficit. Recently, the Treasury Department reported that the budget deficit for fiscal 2013 was $680 billion, but the true deficit cannot be calculated without the 2013 Financial Report of the United States Government, scheduled for publication on Feb. 26. …

… Congress goes wrong whenever it commits the country to future expenditures and creates permanent appropriations to make that spending automatic. Such actions have to be reflected in the financial statements, and if they are not, the government is committing fraud on its citizens.

THE THREE MAJOR VIOLATIONS ARE:
1) The Federal Reserve System, Fannie Mae, and Freddie Mac, with total assets of $4 trillion, $3.3 trillion, and $2 trillion, respectively, are not consolidated into the federal government’s balance sheet.

2) The federal government’s $24.2 trillion net-present-value obligation for Medicaid was reported for the first time in the 2010 Financial Report and buried in supplementary information in that report. Omitting the disclosure of material information, as was done from the creation of Medicaid through 2009, violates the laws against fraud, and the Supreme Court’s “buried facts” doctrine suggests that even current reporting is unlawful.

3) The total adjusted obligation for Medicare and Social Security reported on the Statement of Social Insurance and in related footnotes is $48.5 trillion. But the statement does not interrelate with the other financial statements, and no current expenses are recorded for required future payments.

The government’s accounting rules are designed to mislead voters about the consequences of their votes. The rules make a mockery of the idea of political accountability. Financial reporting leaves voters with no idea how large federal government expenditures are. They cannot send the responsible representatives packing because they retired from Congress years ago. Their current representatives say that their hands are tied on mandatory spending and they cannot be held accountable.

Regular readers of both Barron’s and this forum should not be surprised.