BALANCING THE BUDGET

When government or a government agency spends an amount equal to the amount they take in, they are said to have a balanced budget. When the government or a government agency spends more than they take in, they are said to have a deficit. To resolve a deficit budget,a government or a government agency can 1)increase taxes, 2)borrow by issuing bonds, 3)cut spending or 4) print more money.

If one were to assume that the budget is an honest statement of the amount needed to run the government or a government agency, the pragmatic way to balance the budget would be to raise taxes.

If the majority rejects raising the taxes, a cut in spending may be the answer. The question "What to cut" then becomes the problem.

Step 1 would be to review the new expenditures proposed and eliminate those that are not absolutely necessary for the operation of the government or government agency.
If the budget is still not balanced,

Step 2 would be to review the old expenditures approved in last year's budget. (Old expenditures would be salaries and costs at last year's levels. Raises and increase in costs would be considered along with other new expenditures)
If the budget is still not balanced,

Step 3 would be to to either print new money or borrow more money. To print new money would cause inflation and the people would have to spend more money for their purchases in the coming year. To borrow money would postpone the cost (plus iterest) to the future.

Borrowing would quite likely postpone the costs which would be greater in the future and perhaps unfair to the people in the future.

Inflation would result in the people sharing the extra cost according to the amount of their purchases in the coming year.

Increased taxes would result in the people sharing the extra cost according to the amount of their income in the coming year.

What do you think would be the best way to balance the budget?

MIND OVER MATTER

IN THE CASE OF MIND OVER MATTER; IF YOU DON'T MIND IT DOESN'T MATTER!

Back in the 1980's, Bankers and Accountants were the most boring but most honest and respected people in the free world. They were the guardians of our money in business and the check on the government. "Full Disclosure" was a sacred trust; cover up was a deceitful crime. Somehow since then, the two, working with global investors, were responsible for the most outrageous plunder since Aegis Khan.

To understand this deceitful fraud, one would have to understand the accounting equation. It is a simple formula - Assets minus liabilities equals net worth. In layman terms this means "What you own minus what you owe equals what you are worth." This is important in finance because nobody can borrow more than they are worth. Accountants prepare statements called Balance Sheets that clearly, and honestly report the Net Worth of a business or government. (Government reports are a little different and basically report how much is received {Income} and how much i paid out.)

For example, if a government had a budget that listed 5B of income and 5B of Appropriations (money to be paid out) it would have a balanced budget. If only 3B were collected in taxes, fees, etc, the accounting report would show a 2B deficit. However, if the government made a "Dervee" with a
bank to receive 2B for the income on Port Shipping Fees for some period of time in the future, and this Dervee was recorded as income; the report would show a balanced budget of 5B income and 5B spent. The responsibility (liability) to pay the Bank on the Dervee could be burried in other official documents. Nothing illegal or unethical here as long as full disclosure and transparancy are not part of your ethics.

Accountants and politicians in government roles sold out to "big business" well before "Dervees" came on to the scene. Accountants deferred some expenses and capitalized others to manipulate the profit figure to allow excessives bonuses to Corporate Officers who hired them. To look at another simplified example, If Company A had 5B in Assets and 1B in Liabilities, one could compute their
net worth at 4B. In 19XX, Company A only made 1M in profits and decided to hire a new CEO who hired a new accountant and signed an agreement to increase profits and that he would receive a bonus of 20% of any profits over 1M. During the year the Company hired an adverising company to run a campaign for 1B greatly increasing sales. Total sales for the year were 2B with operating expenses of 1 1/2 B, and Advertising Cost of 1B, decreasing the total Assets by 1/2 B and an operating loss for the year of 1/2B.

The CEO and Accountant decided to capitalize Advertising Expense as Goodwill (An intangilbe Asset) at 1B which increased Assets by 1B, decreased the operating expenses by 1B and changed the 1/2 B loss to a 1/2 B profit, giving the CEO a bonus of 80M (500M minus 100M X 20%

Financial Statements before "innovative" accounting.

Assets 4B 500M Liabilities 1B O00M Income 2B 000M
Oper Exp 2B 500M
Net Worth 3B 500M LOSS 500M


Financial Statements after "innovative" accounting. Income 2B 000M
Oper Exp 1B 500M
Assets 6B 420M Liabilities 1B 000M Profit 500M
CEO Bonus 80M
Net Worth 5B 420M Net Profit 420M

OBAMA PROMISES

President Obama promised many things in his electoral campaign, among which was the statement that it wouldn't be easy. This certainly has proven to be true. He also said that he would use a bipartisan approach to make the necessary changes in Washington. Keeping his word on this pledge caused him to break his promise on the second part of this pledge. The attempt to compromise with Republicans as well as some self seeking Democrats has made the first year less successful than it may possibly have been. A key may have been the retainment and appointment of prior administration officials in major positions. The Secretary of Defense seems to be following a sensible path to end the wars, but the Secretary of the Treasury appears to pursue the old path of support for Wall Street rather than the support for Main Street. The later has taken this to the extreme in the bailout of AIG and other "Wall Street" interests. The Sec of Treas and the retained head of the Federal Reserve are steeped in "old ways" and probably would be unable to make the changes that were promised if they actually wanted to. The President can't do it alone, and even some of his fellow Democrats aren't helping him either. But give him credit. He's still trying and there are 3 more years to go.

VIOLATION OF CONSTTUTIONAL RIGHTS

The Supreme Court decision to allow Corporations and Unions the right to unrestricted contributions for poitical funding is in violation of the individual rights of individuals. CEOs and Union Leaders do not have the right to vote or use the rights of the individual stockholders in the Corporation or the individual members of the Unions without their consent and permission. Political Donations are a definite part and partial of the voting process, and in a democracy voting is restricted to one vote per individual. Even in a Republic such as ours that has a Constitution guaranteeing individual voting rights, voting is restricted to one vote per individual. Any person, or thing, or Supreme Court Decision that interferes with an individual's vote is in violation of voting rights granted under the Constitution.

SUPREME COURT DECISION UNJUST AND UNFAIR

The Supreme Court decision to allow Corportions and Unions to make political contributions is unjust and unfair. This allows Corporate CEO's and Union Leaders to make decisions for others without their concent or permission. This distorts the principle of democracy, majority rule. Minority stock holders and members of unions should have the right to their own political decisions.

COLOR CODING FOR FULL DISCLOSURE

Back in the 20th Century, financial statements that were prepared by CPA's were considered the standard for accuracy and honesty. The Accountant's creed was Full Disclosure; anticipate all losses and take up no gains until they are realized. Relaxed government regulations for approved accounting practices near the end of the century have led to "cover up and corruption," with one of the biggest CPA firms in America found guilty of fraud and deceit. Now. the political scene is promoting "transparency," another term for full disclosure. Regulations are being instituted and a new dimension is coming into the mix - Color Coding. Like math, color is a universal language and it is capable of absolute accuracy.

Color is being introduced into the accounting process through a publication from University Press of America that is coordinated with an educational game that defines color coded accounts and precedes the development of Color Coded Financial Statements.

Assets are Blue, Liabilities are Red, Net Worth Accounts are Yellow, Income is Green and Expenses and Costs are Orange. Technology has advance to where this innovation can be simply incorporated into the system. Financial practices and schemes have advanced to the point where old tried and true accounting practices are inadequate to produce the goal of "full disclosure." Something new is needed to keep pace with the business world, and that new dimension is "Color Coding."

AN ESP APPROACH TO BUDGETING

A recent comprehensive study on budgeting published by University Press of America features a three part budget plan to produce a balanced budget. The plan is called "An ESP Approach to Budgeting." The plan has little to do with Extrasensory Perception; E stands for Existence, S for Survival and P for Progressive. Simply put, rather than plan spending and hope for income to cover costs, spending is planned and expedited as income warrants.

In the first stage, E, a budget is planned with the most conservative income and only the absolutely essential costs necessary for existence are included. This is a down hill budget that would lead to future bankruptcy but it allows the enterprise to exist in hope. In the second stage. S, enough income is budgeted to cover the expenses necessary to maintain operations and survive. In the final stage, P, spending is prioritized and activities are expedited as income allows. This is an Ultra-conservative approach and is perhaps more acceptable for "out of control" government entities than for high risk, low security entrepreneurs. It discourages the "fast buck, pot of gold" dream, but it reduces the catastrophic failure syndrome.

The ESP approach may be the road to recovery for bankrupt states and local authorities across the country who are apparently stagnated in the tax/benefit dilemma. Slowly developing activities in the progressive budget stage could not only stimulate tighter financial control, it could also portray a vivid picture to the public of the correlation between taxes paid and the benefits received, giving the public a more realistic understanding of how tax monies are used.

The study suggests that a total involvement of everyone effected by the budget in the budget process produces a more effective and efficient financial operation. Skillful monitoring of the budget is essential for adjustment to unanticipated conditions and circumstances.