by Mitch Kokai
Senior Political Analyst, John Locke Foundation
[T]he Federal Accounting Standards Advisory Board, or Fasab, an obscure government agency, might formalize guidelines more than six years in the making that some say let the U.S. game its fiscal numbers—mainly by allowing it to leave institutions such as the Federal Reserve, Fannie Mae, and Freddie Mac off its consolidated financial statements.
The omission isn’t small, given the Fed’s expansion of its balance sheet to $3.3 trillion, and Fannie and Freddie’s $5.2 trillion in assets. And it adds to partisan rancor, since so much of the grappling over the budget and debt ceiling hinges on how much money there is to spend and how much Uncle Sam owes.
For example, if the rise for social programs like Medicare were included in the statements, they’d show that the U.S. outspent its revenue nearly 4 to 1 in the past 10 years, says money manager Joseph Marren, a former Wall Street banker who opposes the proposals. The White House contends that the overspending was just 32%.
The Fasab will hear comments Aug. 28 on the proposals. Should they be formalized, the U.S. could more easily claim that its accounting for the Fed and other entities complies with generally accepted accounting principles. Although some Fed disclosure will be required in footnotes, the U.S. will be able to continue to omit “an important piece of financial information” from its statements, says David Mosso, a former Fasab vice chairman.