Planning for 2011: The Budget

I’m doing our annual budget using the accrual method of accounting* because I like seeing the big picture. I’m a realist. Except when I’m actually writing checks in, say, a clothing store, which is when fantasy takes over. Which explains why I don’t carry a checkbook anymore. Or a credit card. We all have our tiny flaws.

First, let’s look at what we owe. Since we don’t have any car, house or fund payments, our part is easy. That leaves accounting for our household’s share of government debt, which we’ve also figured using the accrual method, meaning it includes unfunded mandates.** OK, let’s get going:

Federal U.S. Deficit as of 2009:

$70,000,000,000,000 (ShadowStats)****

# of U.S. Households: 105,500,000*** (2000 census)

That makes our household’s (and your household’s) share = $667,000. Thankfully, there are now three earners in my household. Otherwise, I’d be worried.

Now let’s add in local deficits.

The Great Commonwealth of Kentucky’s Deficit:

$44,000,000,000 (From BIPPS and Phil Moffett for KY Governor) | $34B in unfunded mandates (pension obligations) plus $10B in other spending-over-revenue

# of KY Households: 1,600,000 (2000 census)

Our household’s share = $27,500

I have to say, when I add $27,500 to the $667,000… I’m starting to feel a little pinched.

Lexington’s Deficit:

$25,000,000 (From an interview with Jim Gray, Lexington’s mayor-elect. I suspect, because I’m suspicious, this number is low. Looking for verification.)

# of Lexington Households: 108,288 (2000 census)

Our household’s share = $230. Whew. We can do this one.

So. Our household’s total liability at this moment (because, you know, in the next moment, it will be higher) is $694,730.

I’d choke but it’s such a ridiculous number, I know I’ll never be able to pay it back. How could I? If I live 20 more years (and I could) and my governments don’t spend another dime, that’s still $35,000 a year for the rest of my life. Neither can you pay it back, because, hey, while I’m at it, I thought I’d look at median incomes for all these households, each of which owes at least $667,000:

Median Income:

U.S. in 2008: $52,000
KY in 2008: $41,500
Lexington in 1999: $40,000

I don’t even have to take a pen to that paper to know default is inevitable. Let’s just get it over with.

But first, a couple of questions:

1. Does my county have a separate deficit, or is that rolled into state? Need to research this so my figures are accurate.

2. Why are government employees’ pensions irrevocable? Government employees voted themselves into this largesse at my expense. They can darn well vote themselves out.

3. This isn’t really a question, but I thought I should let you know that I have no pension fund. In lieu of that, I have set up my own unfunded mandate. As soon as I can figure out how to become a government, I’m going to make all U.S. citizens fund it from current income. (Whoever does this first, by the way, wins.) I figured it out as follows: I need $10,000,000 set aside in treasury bonds at 4% to throw off $400,000 in annual income and benefits. Which is what a Senator will enjoy for having pestered us for a number of years while living like a king. But don’t panic, for goodness sake! Ten mil divided by 105.5M households is only — tada — $.10 a piece! Piece of cake. There’s a donate button there to your left. As soon as you make your payment, I will cross your name off my list.

And now, because I can’t shut up:

*Anyone who wants to know the true picture of their financial health, which includes most private business, uses the accrual method of accounting, as opposed to the cash. The cash method of accounting only counts money coming in and going out for a short time period, say a week or a year, and results in what accountants call an “income statement.” Cash accounting makes no accommodation for future income/debt, like for instance, a college fund or a cruise. Or a pension. It might account for payments made to those debts during the short term, but does not account for the total debt. For long term planning, the cash method is deceptive and unreliable: it might show a profit or a loss in the short term when, in the long term, just the opposite could be true. Or that profit/loss could actually be many, many, many more zeros into the black/red.

BTW, your government uses the cash method, which is why they can lie so handily about what they you really owe. They simply leave future debt, i.e., unfunded mandates, out of the equation. This makes you think the national debt is only $14T when it’s actually $70T.

The cash method’s income statement is actually one portion of the accrual method of accounting, which gives a complete picture of the user’s financial health. You produce several documents, including an income statement, a depreciation schedule, accounts receivable, accounts payable. Every piece of your financial life is included on the resulting balance sheet which tells the whole story, and on which, if you’ve told the truth, you can rely. A balance sheet comes in very handy when you are considering investments and want to judge how risky you might be.

**A word about unfunded mandates. An unfunded mandate is a future liability, a contractual promise made, i.e. public employee benefits and pensions, medicare and social security, that is unfunded, i.e., there are no funds set aside. When these mandates were voted in, government promised they would be funded and that those funds would be invested wisely. Oddly, it did not factor in a consequence should the “funded” part of the promise fall through. That’s where you and I and our median incomes become an important part of the solution.

***Interestingly, there were 130,000,000 housing units in the U.S. in 2009. Unless the population grew by 8% between 2000 and 2009, be aware that housing prices may fall.

**** 15 December 2010 UPDATE: Max Keiser says $180T. So, um, double your household share. Sigh.

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