Mishandling "the people's money": not even the most corrupt "corporate kingpin" can match the federal government's achievements in financial dishonesty and bookkeeping fraud. (Cover Story: Economy).

If you're a CEO and you think you can fudge the books in order to make yourself look better, we're going to find you, we're going to arrest you, and we're going to hold you to account," blustered President Bush shortly before signing the recently enacted "corporate reform" measure. The purpose of that law was to say "loud and clear to corporate America, we expect you to be responsible ... with the people's money."

Since Mr. Bush professes to read the Bible every day, and has publicly described Jesus of Nazareth as his favorite "philosopher he's probably familiar with the following proverb: "... how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and behold, a beam is in thine own eye? Thou hypocrite, first cast out the beam out of thine own eye...." (Matthew 7:4-5).

The stunning hypocrisy of Mr. Bush's pious pronouncements about "corporate integrity" is underscored by his use of the Marxist expression "the people's money" to describe private investments, rather than money seized from Americans through taxes. If federal officials charged with handling "the people's money" were subject to the same criminal sanctions used to threaten corporate leaders, the president and many members of Congress would spend decades looking at striped sunlight.

The sole legitimate purpose of government is to protect the rights and property of the law-abiding population that creates that government. This role includes punishing theft committed through force and fraud. In this regard there is a sound case for criminal prosecution of corporate leaders who knowingly defraud shareholders. But in managing the public purse, the federal government almost exclusively uses force and fraud: The feds collect taxes through force, and fraud is woven deeply into the fabric of the federal government's accounting system.

President Bush and politicians on both sides of the narrow partisan divide have expressed theatrical outrage over the dubious accounting methods practiced by the likes of WorldCom, Enron, and other firms that "cooked the books" to make themselves look more profitable to investors. But the federal government could be considered the Wolfgang Puck of book-cookers. Corporate leaders confront both bankruptcy and prison once their fraud is detected, but the political class is happily immune to such sanctions: Government, unlike private business, cannot go out of business, and those at the top can distort the law to protect themselves from the consequences of their criminal fraud.

Black and White and Red Ink

In passing "corporate reform" legislation, the political class has "demanded that corporations present their financials in 'black and white,' not recognizing any gray area in the reporting of a company's profits," notes financial consultant James Sheehan. The practice of honest accounting does include some gray areas -- for instance, estimates of profits and expenses over several accounting periods. But the same politicians demanding black-and-white private accounting practices employ an Orwellian inversion of black and white in managing public funds. Only in the realm of government accounting, for instance, can an increase in spending be designated a "cut."

President Bush, that paladin of sound accounting practices, described this process during a February 22, 2001 press conference: "Let me remind you ... that accounting in Washington is a little different than the way ... the average person accounts. This is a town where if you don't increase the budget by an expected number, it's considered a cut." Promising to end the practice of his big-spending Democrat predecessor, President Bush promised, "We're going to slow the rate of growth of the budget down. It should come to [sic] no surprise to anybody that my budget is going to say loud and clear that the rate of growth of the budget ... from last year, was excessive. And so we'll be slowing the rate of growth of the budget down. That, evidently, is a cut."

What the president described was not a "cut" but a smaller than anticipated increase in spending. Furthermore, when Mr. Bush presented his Fiscal Year 2002 budget a couple months later, it actually called for a 5.7 percent increase in federal spending--as contrasted with the 3.7 percent increase contained in Bill Clinton's final budget. Were the president, in his role as chief executive officer for the federal government, liable to the same standards being imposed on private CEOs, this single act of fraud would presumably net him a sizeable prison term.

During the late 1990s, when many of the corporate scandals now in the headlines were gestating, Washington, D.C., was awash in talk about the "budget surplus." Some commentators properly pointed Out that if such a surplus existed, it should be relinquished immediately to the taxpayers.

But the federal "budget surplus" was an artifact of accounting fraud: It was created by raiding several so-called "trust funds" (the largest being Social Security) that were arbitrarily designated "off-budget." Between September 1999 and September 2000, a period in which the political class engaged in frenzied discussions of divvying up the "surplus," the gross federal debt rose by $23 billion. Translated into business terms, this means that the feds falsified corporate profits. On August 1st, agents of the same federal government that perpetrates such fraud arrested Scott Sullivan and David Myers, former financial officers with WorldCom accused of fraud and conspiracy for their role in allegedly hiding $3.8 billion in company expenses.

Inflation Fraud

No matter how big or powerful private corporations become, they cannot compel consumers to buy their products, or investors to supply them with capital. Government, however, has the power to take money from its subjects through taxation. To the overt taxes extracted by the federal government must be added the most expensive, insidious tax of all--the concealed tax called "inflation."

Inflation is an expansion of the money supply creating upward pressure on prices. It typically occurs when the government borrows money to finance deficit spending. To fund such spending government sells Treasury bonds--essentially, very large I.O.U.'s--to private banks; those bonds are then sold to the quasi-private banking cartel called the Federal Reserve, which issues paper money to pay for the bonds. That money then goes into circulation, reducing the value of all money relative to the goods and services it can buy.

Typically, government officials and those retailing the government's line describe inflation in terms of its effect--an increase in the cost of living--rather than its cause. This permits the government, which causes inflation, to blame its victims -- one of the slickest bits of fraud ever perpetrated in the history of crime.

Through inflation, government stealthily steals the value of money, thereby eroding earning power and the value of personal savings. This encourages private indebtedness, since present spending can be repaid later in devalued money. It also generates a downward spiral in which currency eventually becomes worthless, destroying the middle class and setting the stage for political upheaval. The most lurid example of this phenomenon, called "hyperinflation," occurred in Germany during the 1920s: The value of the German mark plunged so rapidly and dramatically that shoppers eventually had to bring wheelbarrows full of currency to purchase groceries. This led to social tumult, culminating with Hitler's regime seizing power.

The most brazen form of financial fraud perpetrated by America's political class is evinced on the face of our paper currency, which advertises itself as "legal tender for all debts, public and private." "Legal tender" refers to monetary instruments that must, by law, be accepted in exchange for goods and services. This would not be necessary if the currency contained innate value, as is the case with commodity money like gold or silver, or if it could be exchanged for commodity money, as was once the case.

But since 1972, when the dollar was completely uncoupled from gold, our nation has been cursed with pure "fiat money" conjured out of nothing by government, and backed by nothing--except for the force of government in the service of this monstrous fraud.

Bush's Radically Changing Estimates for the Fiscal 2002 Budget

(in billions of dollars)


                           Bush Estimate          Bush Estimate
                           as of April 2001 *     as of Feb. 2002 +

Outlays                          1,961                  2,052
Surplus/Deficit                    231 (surplus)         -106 (deficit)
Gross Federal Debt               5,664                  6,137
at end of fiscal year

                           Oops!
                           Difference in
                           Estimates

Outlays                          91
Surplus/Deficit                 337
Gross Federal Debt              473
at the end of fiscal year

Business as usual: Shortly after taking office, President Bush submitted
a budget to Congress forecasting a $231 billion budget surplus for
fiscal 2002 (Oct. 1, 2001-Sept. 30, 2002). But in the budget he
submitted to Congress a year later, the estiamted $231 billion surplus
for fiscal 2002 became instead an estimated $106 billion deficit. In
today's political climate, the corporate heads of a private firm would
likely be accused of criminal intent for so badly forecasting their
bottom line. But for the federal government, it's business as usual.

* Data from Bush's 2002 Budget proposal, submitted in April 2001.

+ Data from Bush's 2003 Budget proposal, submitted in Feb. 2002.