The State of Our Government – Part 4

by Blogger on March 26, 2010 · 4 comments

So, let’s take a look at America’s Financial Statements:

The United States’ Financial Statements

The Balance Sheets for 2008 and 2009 (for comparative purposes) are shown below, and are taken from the U.S. General Accounting Office’s web site.  Click here

to see the Financials in detail.  All numbers are in billions of dollars.

2009 2008
Assets 2,667.9 1,974.7
Liabilities 14,123.8 12,178.2
Equity -12,208.6 -10,908.1

As you can see, America’s “Equity” decreased by more than $1.3 trillion from September 2008 to 2009.  The “why” it increased is irrelevant… for now.  What is relevant is the Equity numbers represent our National Debt.  What’s also relevant is there are two major liabilities that are not included in the basic Balance Sheet:  Social Security and Medicare.  We’ll talk more about these imminent financial disasters in a future article.

Let’s take a look at our Income Statements for the same periods:

2009 2008
Revenue 1,192.5 1,661.7
Expenses 2,091.2 2,387.4
Profit -1,302.1 -1,093.5

Note: The losses don’t quite add up due to a thing the GAO calls “Intragovernmental Transfers” and “Unmatched transactions and balances”. These are shown in detail on the GAO web site

.

In 2009, our Government spent $1.3 trillion more than they took in.  This is our Budget Deficit., and it was 19% higher in 2009 than in 2008.   Again, Social Security and Medicare are not included in these figures… nor is Department of Defense spending.  Latest estimates indicate the deficit will climb even higher in 2010.

OK… let’s take a look at the financial ratios discussed earlier for 2009:

  • Current Ratio:  0.189  – A generally acceptable Current Ratio is 2:1 (Assets are twice Liabilities).  The minimum acceptable Current Ratio is 1:1 (Assets=Liabilities).
  • Debt Ratio:  5.29  – Over 65% (o.65) generally indicates excessive debt.
  • Debt-to-Equity Ratio:  1915.2 – The upper acceptable limit of the debt to equity (debt or financial leverage) ratio is usually 2:1, with no more than one-third of debt in long term.  A high financial leverage or debt to equity ratio indicates possible difficulty in paying interest and principal while obtaining more funding.
  • Return on Equity:  -0.107 – A return of over 10% indicates enough to pay common share dividends and retain funds for business growth.  Remember, we have a loss (negative profit) and negative equity (we owe more than we’re worth).

The financials are horrid.  If my business had financials like these, I would be out of business.  No bank would loan me money, because I can’t show any way I’ll ever be able to pay it back.   If any bank in the nation has financials 1/10 as bad as these, the Fed would sieze them in a heartbeat.  See below:

  • A Current Ratio of 0.189 shows our Assets are 18.9% of our Liabilities.  Put another way, we owe 5.29 times more than we own.
  • A Debt Ratio of 5.29 means we owe 8.13 times what’s considered excessive.
  • A Debt-to-Equity Ratio of 1915.2 means we’re over-leveraged by almost 1000 times the upper acceptable limit.
  • A Return on Equity of -0.107 means there isn’t enough return on equity to retain funds to run the Government, let alone give any back to the taxpayer.

This is where our Government differs from the real world in terms of fiscal responsibility, and it is especially true of the current Administration.  What they’ve done is found a lender that will still lend them more money (the Chinese), but at what cost?  How are we going to ever repay that debt if we continue to spend more than we take in?  More importantly, from political and security perspectives, why are the lending it to us, and what are the long term ramifications?

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, Financial Statements , Government Accounting , national Debt , Taxes

{ 4 comments… read them below or add one

}

TracyQuast June 16, 2017 at 4:26 pm

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B April 14, 2010 at 5:56 pm

C,

Change your text; “We also need to reevaluate our tax structure to make it more equitable for all Americans. Everybody pays… period. I’m not saying get rid of the progressive income tax… I’m saying reevaluate it and make it more fair.”

to read
‘I’m saying reevaluate it and make it more equitable’. . . fair is an arbitrary state of the weather.

That’s my input for the night. . .

You’re on target. ..

b

Blogger March 30, 2010 at 5:49 am

LOL… depending on how you look at it (or who you talk to), you’ll get different answers on how we got to where we are today. I think it goes back to Teddy Roosevelt, with Woodrow Wilson, FDR and LBJ as major influences. Though not as Progressive as the others, LBJ put the U.S. on MasterCard when he escalated the Vietnam War, and we’ve never recovered. How to fix it will be an ongoing discussion here.

I agree we need to get back to being a manufacturing power, but I don’t really think it will ever happen. I’m not so sure the military needs to be scaled back as much as it needs to become more streamlined and efficient. This would have to start in the Pentagon and a good hard look at our Procurement processes.

Cliff March 29, 2010 at 5:50 pm

i couldn’t agree more — i’m fairly sure you and i have different opinions on how it got this way (i feel it started back way farther than last year) or how to fix it, but we need to focus on this now as a country.

i also think americans need to start making more things and less buying things from other countries – also scale back our military (i don’t feel i’m in danger of getting invaded on anytime soon) & many many other things

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