George W. Bush is the first US President to have earned an MBA. The Bush Administration's first term was fraught with poor accounting, fiscal irresponsibility and a willfullness to mislead the public on the cost of legislation. The American voting public re-instated the Bush Administration with a second term knowing this. The White House and Legislators are continuing this process with their proposed changes to the handling of the Social Security Privatisation. The cost of this ongoing mismanagement and fondness for Enronomics may be the collapse of the US economy.

Enron

The poster company for criminal deception in the public markets remains Enron. One of the accounting tricks the Houston, TX based energy company used was to hide "off-balance" their huge debt liability. This was done by creating smaller companies that existed purely to carry Enron's debt. Consequently Enron, as the parent company, was presented to the public and shareholders as a low debt and clean business.

This is similar to the accounting tricks that have been used by the Bush Administration and the Republican majority in Congress to make their bills publicly palatable. They hide the true cost of their legislation "off-balance" through accounting tricks, or in some cases just flat out lie about the costs. The Social Security legislation that is currently being concocting is no different ;

Republican lawmakers and the Bush administration are examining a number of accounting strategies that would allow the expensive transition to a partially privatized Social Security system without -- at least on paper -- expanding the country's record annual budget deficits. The strategies include, for example, moving the costs of Social Security reform "off-budget" so they are not counted against the government's yearly shortfall.

Basically, they are going to lie about the true debt liability the government has, in order to make the Social Security changes appear less expensive than they really are. This is Enronomics.

Message to CEO's

The Administration and Congress were full of sanctimonious hypocrisy during the corporate scandals that helped drive the stock market down between 2000 and 2002. They even went as far as to have the SEC force CEOs to sign their submissions. Sun CEO, Scott Nealy, made the point that he will sign when government starts signing their budgets.

When the Bush Administration started the drive to go to war in Iraq, they did not submit any cost expectations for it. A number of unusual "on-message" mouthpieces stated opinions that it would be cheap, 20 billion max, or that Iraqi oil would pay for it. After hostilities began, a request for $87 billion was sent to Congress by the White House. There was initial outrage, but it was quickly forgotten as the news cycles ran the next outrage.

A similar game was played by the White House with the Medicare Bill. The cost of the bill was raised from $400 billion to $540 billion with the release of the 2005 budget. There was outrage ;

"This does not surprise us," said Bill Beech, a budget analyst with the Heritage Foundation. "I'm frankly a little bit surprised the number isn't larger." The foundation opposed the Medicare drug law because of the cost, which the conservative research organization estimates will reach $625 billion over 10 years.

"The ink isn't even dry [on the new law]. There's not a single discount card issued yet, and the price went up by over 30 percent," said Representative Rahm Emanuel, Democrat of Illinois and a House Budget Committee member. "It's a total, arrogant disregard to taxpayer dollars and to seniors."

But again, it didn't stick in the public conscience to any large extent. It was just another example of government fiscal mismanagement and deception.

Debt, Debt and More Debt

When Dick Cheney was quoted in Ron Suskind's book as saying, "Reagan proved deficits don't matter.", he meant that government is not held accountable by the electorate for it. They are not punished politically for running up deficits. Given that Congress is so heavily gerry-mandered that it has a 95% incumbency rate, there is little likelihood for Representatives to be punished at the ballot box for their rampant pork expenditures. At the Presidential level, the Bush Administration was not punished by the electorate for their economic mismanagement either.

Three times in three years the debt ceiling of the US Government has been raised. Last year it was raised $388 billion, and just recently it was raised $800 billion. Calling it a ceiling is a misnomer - each time the limit is reached the number is just raised again by congress. This is the same process as copyright which in the US has a constitutional limit of a "limited time". But with the Sony Bono Act, the limited time continues to be increased each time Mickey Mouse comes close to falling out of copyright.

Where Will It End

American public debt now stands at around $7.2 trillion USD. The American economy generates approximately 11 trillion in GDP. Pork barrel spending has increased from $10 billion in 1995 to $23 billion in 2004 . To fund the Current Account Deficit, Americans borrow $2.6 Billion a day from the rest of the world. This is 80% of the world's savings. The Administration and Congress does not have the political will or even the empirical recognition to reign in the unsustainable Public Debt or Current Account Deficit.

Stephen Roach from Morgan Stanley believes that America is facing an economic armageddon with increased inflation or high interest rates as the only means to temper the current unsustainable nature of the huge American public and private debt;

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that "we'll muddle through for a while and delay the eventual armageddon." The chance we'll get through OK: one in 10. Maybe.

The nature of private debt and how it has been accrued is an issue. Americans currently have debt that is 85% of the American economy, up from 50% twenty years ago. Half of all new mortgage borrowing is with flexible interest rates, which makes many new borrowers vulnerable. Any Australian that can recall the pain of interest rates being between 13% and 18% in the early 1990's will have empathy here.

The big winners of any meltdown will be those households that have fixed rate mortgages - if interest rates rise, they are still protected. If government chooses to chip away at public debt through inflation, then the private debt also benefits in being lessened. This assumes of course that these households don't end up losing their jobs.

Conclusion

In an environment where strong governmental leadership is needed, to control public debt and deficits; where strong fiscal prudence and a vision for how the American economy can still succeed and prosper under these pressures - is vital. Instead the US and consequently the world economy is saddled with an MBA President more comfortable in the make believe world of Enronomics and board rooms that are more echo chambers than tables of empirical study and policy. The incompetent Bush Administration is fortunate that 51% of the American electorate chose not to punish them for their ongoing fiscal mismanagement.

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