You read that correctly. Not only would we not be talking about a surplus in the neighborhood of a trillion dollars, but we would be discussing BUDGET DEFICITS. Holey moley, we can't even get a trillion dollars on the correct side of a T-account!

I find Greenspan's statement that correct accounting would in fact reveal a very different story about the federal budget absolutely incredible. It is the first time that the Mr. Greenspan has even hinted that the talk about the surpluses and what to do with them is not only premature, but quite ridiculous. I should add that Greenspan went on to defend the non-GAAP accounting. Senator Hollings-bless his soul!-didn't relent in pressing him to explain why. Unfortunately, the Fed chair could not. His only retort was that he would explain it later to the Senator. When he does, I hope Greenspan tells the rest of us.

As Senator Hollings explained, what's really going on is like a consumer paying off her Visa credit by using a Master Card. The balance on the Visa card goes to zero, but that fact doesn't mean that all is economically well with our consumer. The debt on the other credit card says otherwise.

Accounting for the national budget involves similar nonsense. The general budget "borrows" from the other funds such as Social Security, and so it exhibits some positive cash flows. To then say that all is well is to invoke some Alice-in-Wonderland accounting. The receivables held by the Social Security fund masks the ugly reality that in a few years all hell is going to break out when the general public discovers that Congress has been playing charades all along. At best, the public will have to face the fact that the estate has been mortgaged and desperate measures may have to be taken to save the economy. At worst, these receivables will someday prove worthless and the economy will take a nosedive.

Of course, it will be hard to get Congress to 'fess up. Democrats want to use at least some of the surpluses to spend on their pet projects; Republicans want to use the surplus rhetoric to defend tax cuts. Heaven help us in another 15-20 years!

More by J. Edward Ketz