Federal Deficit a Lie, FASB and the Fed Bend the Rules, and Grantham on Gold

Richard Viguerie: Bush White House Hides True Scope of Federal Deficit (July 29 - PR Newswire)

"Under accounting trickery that would probably land the top officers of a publicly traded company in jail, the money borrowed from the Social Security Trust Fund -- and spent on anything and everything except Social Security payments -- is not counted towards the budget deficit, although it is part of our $9.49 Trillion National Debt.

"It's way past time for Washington politicians to have their own Sarbanes-Oxley."

"But this is how corrupt Washington has become. Besides the dangerous practice of massive deficit spending, which will saddle our children and grandchildren with trillions of dollars of debt, the Bush White House and Congress are conspiring to conceal the true nature and scope of the problem."

"This year's budget deficit will actually be $307 billion worse than the politicians are saying. This fraud on the American people is a conspiracy of silence by both major political parties.”

True conservatives are hopping mad about the financial fraud that is being perpetrated on the American people. I remain both surprised and perplexed that both political parties seem intent on completely ignoring this growing problem. Surprised because the problem is simply too obvious to ignore, and perplexed because I am certain that the cause has political traction. Given that DC can be found pandering to some very small special interest groups for what can only be described as pathetic amounts of money, why is it that this issue remains completely taboo? Beats me, but I like reading that others are concerned for the future of our country like I am.

As an anecdote, one of the most successful articles I wrote (The US Is Insolvent) was picked up and trumpeted by Daily Kos on the left, John Birch on the far right, and libertarian sites as well. This tells me that there is considerable opportunity here to unite some groups that would ordinarily be bitterly opposed to each other. So I wonder if the primary reason that DC does not pick up this issue stems from a desire to keep such groups apart. Just a thought….

FASB votes to delay off-balance sheet rule change (July 30 - Reuters)

WILMINGTON, Delaware, July 30 (Reuters) - The Financial Accounting Standards Board, which sets U.S. accounting rules, voted on Wednesday to delay accounting changes that would affect trillions in off-balance sheet assets at banks and financial companies.

What is this yawner of a headline all about? It is just another late-in-the-game rule change designed to allow US financial companies not have to properly account for their losses and liabilities. It goes along with this next (very important) yawner…

Federal Reserve Actions (July 30 - Federal Reserve)

Actions taken by the Federal Reserve include:

• Extension of the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) through January 30, 2009.

• The introduction of auctions of options on $50 billion of draws on the TSLF.

• The introduction of 84-day Term Auction Facility (TAF) loans as a complement to 28-day TAF loans.

• An increase in the Federal Reserve's swap line with the European Central Bank to $55 billion from $50 billion.

Here the Federal Reserve has very quietly slipped onto its website the news that it is extending all the past ‘loans’ to troubled institutions and expanding the program in a few ways. I have always maintained some concern that the Fed would make its “temporary” programs of lending into permanent actions, thereby ‘monetizing debt.'

This news *should* have been very dollar-and-stock unfriendly (along with the federal deficit news and the profit declines and warnings), but for some reason it has been taken as the exact opposite by the market. I maintain that all of these late-in-the-game rule changes and liquidity injections are indications of weakness, not strength, and I draw little comfort from them. It seems to me that the path to health will involve actual recognition of losses, instructive failures, and an admission that mistakes were made. At present I count most official acts as attempts to cover up and gloss over the painful and shameful actions of the past few years.

Even the pros may be stuffing the mattresses (July 29 – Chicago Tribune)

"I am officially scared," GMO investment manager Jeremy Grantham told professionals from as far away as Abu Dhabi and Malaysia. "In 2000, we had a technology bubble. But this is massive, a massive credit crisis and a bubble in global housing, global equity and global land."

Grantham is sometimes referred to as a "perma-bear" because he's a stickler about avoiding overpriced stocks. Two years ago, he warned his audience that U.S. stocks were too expensive, even after recovering most of the ground lost from the 49 percent drop to correct the bubble in technology stock prices in 2000. But back then, Grantham was cautious; not fearful. While he was avoiding U.S. stocks, he thought fast-growing emerging markets still held promise.

He confessed to the group that "I bought my first gold last week, and I hate gold. It doesn't pay a dividend. I would only do it if I was desperate."

Jeremy Grantham has been branded a “perma-bear” here, but his track record is impeccable. I think it’s a disgrace that he is considered “devoid of optimism” (that’s what it means to be a perma-bear) when his standards rest on refusing to overpay for financial assets.

At any rate, I got a charge out of the gold quote. Not because I am happy to have Jeremy in the gold camp, which I am, but because gold ownership is still something that has to be “confessed to.” That means the gold bull has a long way to go and is nowhere near bubble territory. One of my signs to get the heck out of gold will be when CNBC has two guests on and they both agree, breathlessly, that gold is the place to be.