Government by slush fund
The U.S. General Fund, also called the Treasury General Account (TGA), pays the expenses and expenditures of all federal entities. The payments are cash transfers made by the New York Fed at the direction of the Bureau of the Fiscal Service in the Department of Treasury. In 2020 (according to the U.S. Fiscal Calendar), the TGA reported paying out twenty-one trillion eight hundred billion dollars, which is greater than the Gross Domestic Product for the year, and more than three times the total assets of the Federal Reserve at the end of this period. Total government outlays were reported as six trillion six hundred billion dollars, a fraction of the above, and of which, shockingly, almost half was deficit spending. On its face, the inferiority of government spending to TGA payments is not unexpected, as the major activity of the TGA results from the borrowing and partial repayment of debt.
The Fiscal Service in the Treasury is required to publish an annual report on the financial condition of the General Fund audited by the Government Accountability Office (GAO). This audit has failed repeatedly. When the outcome of an audit is a disclaimer of opinion by the accountants, that means that the account presented has failed its audit. By way of translation from accountancy-speak to plain English, receipts have not been made available to the accounting team to substantiate the claims made in the report. Since at least 2018, the accountants have been working patiently and courteously with the Fiscal Service to explain what needs to be done to make their financial report at least auditable. In view of the magnitude, complexity, and importance of the task, that is a positive, constructive, good thing. However, it is unlikely to escape anyone's notice that an audit failure by a corporation, small business, family, or individual receives quite different treatment. A corporation, absent demonstrable egregious fraud, may use accounting and legal resources and political influence to come to an agreement. A small business, family, or individual faces harsh financial penalties and possibly prosecution. Because of growing governmental weaponization, the risks are even greater if an individual is viewed as a political opponent.
The audit of the report on the General Fund for 2022 was recently published. No surprise: failure. Again. The auditors concluded that the financial information in the report on the General Fund may not be relied on.
A bit of historical context may assist in understanding the present. In the 22 years from 1986 through 2007, the General Fund's daily balance averaged $5.8 billion, and its maximum daily average during a single week was $32.9 billion. This period is taken as the baseline of comparison. In the period from 2008 through 2016, the daily average was multiplied more than 22 times, and the maximum average for a single week was multiplied 13 times. From 2017 through 2022 the daily average was multiplied more than 88 times, and the maximum was multiplied more than 55 times.
It is apparent that in the years after 2007, the U.S. government underwent a phase transition. In the language of thermodynamics, that event was irreversible. A consequence of this is that there will be no return to an economy before 2008. There is an insurmountable barrier between now and then.
The first article of the Constitution mandates that federal payments are permitted only for appropriations made by law with statement and account of both receipts and expenditures, and the Supreme Court has added that an act of Congress is indispensable. It is undeniable that the government is in breach of this obligation and has been for years.
Such mismanagement brings heavy consequences. Without access to reliable facts of its own financial activity, officials of the Executive making policy decisions are themselves at risk of grave errors. Congressional oversight is impossible, and Congress is left to act on supposition without the relevant facts being made available.
The noted accountant Jerry Seinfeld once pointed out that taking a reservation has two parts: first to take it, then to hold it until at least the scheduled arrival of the client. Similarly, in the absence of knowing what has been spent and for what purpose, Congress has the power to appropriate, but not the capability of determining what happened to the appropriation. In these circumstances, talk of the power of the purse is rhetorical and the figment of an overactive imagination. And, not least, there is no rational basis for confidence that the General Fund is something other than the Leviathan of slush funds.
Image: Dept. of the Treasury.