U.S. Government Guilty of Financial Fraud

Dec
04

 

By Charles Biderman

If the U.S. government were subject to the same laws, such as Sarbanes Oxley, as is a public company Barack Obama and Timothy Geithner would be guilty of financial fraud. How can I make such an outrageous claim? Simple, it is the truth.

 

Here is my evidence. Income measurement is probably the first and most important metric of any public company. In the case of public companies, deliberately and blatantly falsifying such data is an act of fraud.

 

But then there is the U.S. government. As I”ve said innumerable times in the past, the U.S. government ignores available real time data. Instead, its initial monthly reports of income and employment are based on surveys modified by five to seven month old income data from the states, and then adjusted for seasonal factors and inflation .

 

The fact is that real time data on income and employment for all workers subject to taxation is embedded in the withheld income taxes sent into the US Treasury daily. In other words, if the US government looked at its own data, everyone would know how many people are working, how much they are making, in what industries and what geographic locations. Instead, all we initially get is wild ass guesses modified many times. We don”t get the real numbers until finalized by the income tax returns that arrive several years later.

 

There”s no rational reason the US government ignores that real time data, unless it is to save the jobs of existing government economists. That would be fraud in a public company.

 

Could you imagine the uproar in the Wall Street Journal and on CNBC if they found out a public company was reporting inaccurate income data for the financial benefit of their employees? Those bosses would go straight to jail! Why not those in charge of the U.S. government.

 

But let us not stop at income. Let us include expenses. The Census Bureau issues monthly something called Advanced Monthly Retail Sales, which is based upon a survey of 3,000 out of millions of retailers. How accurate is that survey when compared with the real time data available from Visa, Mastercard and all the other plastics about who is buying what, where and when?

 

How can the US government justify putting out financial reports that investors use to trade upon based on a survey of 3,000 retailers while ignoring the real time data? Imagine the uproar if a public company was discovered estimating its It’s not “money = free-credits-report.com . sales by surveying a small percentage of its customers?

 

And that is just the income statement. That alone should enough for a guilty verdict in terms of financial fraud. But the balance sheet data is even worse!

 

What I am about to tell you may be rather complex, but it is worth taking the time to understand.

 

The Federal Reserve, in its quarterly flow of funds, reports that in aggregate the US has total assets of $76 trillion, and $13 trillion in liabilities leaving $63 trillion in net worth.

 

But as I reported last week, $87 trillion is the present value of all future government liabilities related to Medicare, Social Security and government worker pensions. Wow. The current value of $87 trillion in future liabilities swamps, swamps total US assets of $76 trillion!

 

What a joke. Imagine if the US government were a public company and had auditors. Any auditor, not wanting to go to jail, would first have to declare the US was not a going concern,meaning US government income is no where sufficient to pay all its current and particularly future obligations.

 

Even worse, the US government totally ignores the fact that that the present value of future entitlements grew by $7 trillion in the past 12 months! Compare that $7 trillion growth in liabilities with $6.6 trillion in after tax income.

 

The shameful fact also is that major financial media outlets such as the Wall Street Journal and CNBC ignore the fraud being committed by the US government, Moreover, they are not demanding the US government report accurate real time data on income, expenses and balance sheet liabilities for the US!

 

Instead of real time data all the financial media talks about is GDP and BLS employment data. The financial media is just as bad as the US government.

 

The prosecution rests.

 

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8 Responses to U.S. Government Guilty of Financial Fraud

  1. Dan M. on December 4, 2012 at 2:14 am

    Mr. Biderman provides the best damn analysis available anywhere. He message of realtime data needs to get out there. Maybe Rick Santelli of CNBC might help him. The rest of the MSM are all government koolaid drinkers.

  2. Ed_B on December 4, 2012 at 7:28 am

    While many may label me as a cynic, my take on the numbers situation is that the US Gov does not use real time data for an excellent reason. They don’t dare! If the average American fully understood the fiscal shenanigans that are being perpetrated in their names, there would be an immediate march on DC by millions of irate citizens armed with ropes, torches, and pitchforks. Since it is unlikely that they could decide on whether hanging, burning, or impaling the current political class is most appropriate, they would play is safe and try all three!

    In keeping with the idea of the US as a company, those of us who are Awake And Aware (AAA) would not be investing in any USA shares. To the contrary, we would be buying put options hand over fist… leveraged, if possible. Every time I see knee-jerk investors flocking into US Gov debt, in which the entire world is awash, it makes me cringe that they are so ignorant of the lack of current financial integrity in these instruments and are only buying them because that is what they always have done. Never mind that they are guaranteed money losers in that their rates of return are significantly below the official rate of inflation. Now, include the fact that REAL inflation is running at a rate that is 3-4x higher than the official rate and a bad investment now looks truly horrible… and that is IF the Gov actually pays off on those bonds, which they might or might given the house-of-cards economy that Greenspan / Bernanke have created.

    We cannot look to the media for any assistance in understanding the current situation. They are masters of misdirection and obfuscation and ply their trade assiduously.

  3. Daniel on December 4, 2012 at 11:34 am

    Can one rationally expect from anyone or any organization to act against his/her/its short-term self-interest (of perpetuating the convenient/comfortable status quo)?

    Things will not change until they absolutely have to and then things will be very quick and (for a lot of people) quite painful. In the meantime the system will promote the old paradigm (“whatever it takes”). Enjoy the party as long as the music plays …

  4. George on December 4, 2012 at 4:52 pm

    Mr. Biderman,

    Great analysis, but HOW do we get the message to the masses so they understand?

    Putting on my accountant’s hat: The $73t in assets less the $13t in Liabilities does leave $63t; and adding in the “other” $87t in liabilities does give a Negative Net Worth; BUT, the $87t is ALSO an Asset to those receiving it. The PROBLEM is that the $87t is OWED by all taxpayers, while the Receivable is OWNED by the 6,649,000 “Public Administrators” (Government[what is another word for workers?]!!!

  5. Wyatt on December 4, 2012 at 8:10 pm

    Mr Biderman,

    How does one get that real-time data? Do you share it with TrimTabs’ clients?

    Thank you

    • cbiderman on December 4, 2012 at 9:28 pm

      TrimTabs Investment Research does sell real time data.

  6. Dick Green on December 5, 2012 at 12:36 am

    Charles,
    While your observations are right on, I have a difficult time profiting from the information provided by real time data. As I observe the market and specifically my investments (including the ones suggested by you), there seems to be little/no correlation between real time economic data and stock value. While we are hostage to politicans, mass media, quick-buck artists and probably more.

  7. John A on December 5, 2012 at 5:48 am

    “Here is my evidence. Income measurement is probably the first and most important metric of any public company. In the case of public companies, deliberately and blatantly falsifying such data is an act of fraud.

    But then there is the U.S. government. As I’ve said innumerable times in the past, the U.S. government ignores available real time data. Instead, its initial monthly reports of income and employment are based on surveys modified by five to seven month old income data from the states, and then adjusted for seasonal factors and inflation.”

    ——————————————–

    Wrong. Public companies are required to post their *own* income, not the income of their customers. The income of the Federal government is tax receipts, which the Federal government *does* report every single day in the Daily Treasury Statement, and summed up monthly in the Monthly Treasury Statement. That aforementioned Treasury Statements might also be used to discern the income of the government’s customers (the tax payers) is irrelevant; as they are legally obligated to do, they do report their *own* income, which is all they need to do. Your accusations of fraud are groundless.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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