Here’s Another Reason Why The Government’s Budget Deficit Figures Are Phony Baloney

There is so much in the government’s official deficit figures  that is phony it is hard to say what is real.

But we should add at least $89 billion to the official deficit figure. To see why, we need a bit of background.

The US government deficit is supposed to be running at around $1.2 trillion. But the government gets there by using accounting methods that would put private business executives in jail for fraud. The real deficit by different estimates should be multiples higher. This is already widely known.

It is also increasingly understood that the Fed is covering the deficit by creating new money out of thin air and using it to buy the government’s bonds. What is not generally understood is that the Fed then posts “income” from the newly purchased bonds, uses some of it to cover its own expenses, which are not subject to Congressional oversight, and then remits the rest to the Treasury. The Treasury in turn can use this phony income to reduce the deficit.

Consider what has happened here. The government sells a bond to itself by selling it to the Fed. The Fed then “charges” the government interest. The interest is actually paid by borrowing more from the Fed, but nevertheless is booked as real Treasury income and used to “reduce” the deficit.

A Bloomberg article mentions in passing that the Fed sent $88.9 billion of this phony income to the Treasury in 2012. That is another $89 billion that should really be added to the deficit.

To put this $89 billion in perspective, it is much larger than the $62 billion per year in expected tax revenue from the new taxes on the rich ( those making over $400,000 a year) that were enacted in January with the “fiscal cliff” legislation.


  1. Mr. Lewis, thanks for sticking with this problem and not letting it go. This needs to be shouted out to the world.

    When we need a flow chart to track this money game, we know that it’s a lot of hocus pocus and fraud. When all is said and done, this represents a criminal enterprise. There are no other words for it. When I read about gigantic budget deficits while TRILLIONS are missing from the US government at the same time, I know that something is very wrong and that this federal government has lost all credibility. See:

    But how do we stop this criminality from happening? I just don’t see Congress stopping this or any legal machinery in place that they would respect to stop it except what people like Tom Woods have proposed: nullification. If that does not work, then America is going to have a REAL PROBLEM.

    I would not stop there, either. Secession is the method of last resort and may be the only medicine which will free us from these thieves. Those small, agrarian communities which Jefferson spoke of and Mises wrote about look better and better with each passing hour. I’m finally beginning to understand what those two were writing about, and the more I think about it, the better I like it. Isn’t the US far too large and complex to be ruled by one centralized government? I think so. That is the road to serfdom. Centralization is what ails us, and I’m agin it.

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