So are you not scared by the $787 billion spend-ulus package being rammed down our throats, or the idea of our national debt being a whopping $10 trillion (and that’s before the Obama Road to Communism Act of 2009). Well if the idea of our country being on the hook for $10 trillion doesn’t scare you, maybe this will. The true measure of the obligations of the federal government is a mind-boggling $65.5 trillion!!!

Why is there such a big discrepancy between this number and the $10 trillion that is widely reported? It comes down to a difference in the method of accounting. The federal government figures deficit and debt numbers on what is called a cash basis of accounting. Cash basis accounting basically is a measure of the actual cash coming in and going out in a given period, with no recognition of any other obligations incurred that may not have been paid out in cash. For instance, under cash basis accounting if you made $100,000 and spent $90,000 but owed an additional $20,000 in taxes you would still have a surplus of $10,000 because the $20,000 you owe but did not pay would be ignored.

The method of accounting used to derive the $65.5 trillion number is U.S. GAAP, which is called an accrual based accounting system. Accrual based accounting is what is typically used by corporations to determine profits and losses. In accrual based accounting, income is recognized (counted) as it is earned and more importantly liabilities are recognized as they are incurred. In our example above, under accrual based accounting you would have a deficit of $10,000 because you would also have to count the $20,000 you owed in taxes for the year but did not yet pay.

In the instance of the federal government, the cash basis accounting numbers don’t include the massive liabilities the government has incurred from entitlement programs such as social security and medicare. However, if the federal government were to keep its books like corporations normally do, they would have to count those liabilities (discounted back to present value, since some of those liabilities aren’t due until well into the future). This gives you the result of total federal obligations being a staggering $65.5 trillion, or an amount higher than the annual GDP of the entire world! In case you are curious, this same accounting treatment would put our true federal deficit for 2008 at $5.1 trillion, versus the $454.8 million reported using cash basis accounting.

In case you are wondering about the validity of these numbers, these are not created by some special interest group or a right-wing nut job like me. These are created by the federal government itself, and you can read the report from the U.S. Treasury here.  You can also read commentary about these numbers here.