Asking simple questions can turn into very interesting quests, like rolling over boulders and examining all the gnarly bugs and slithering creatures crawling underneath.
Here’s a simple question. What is an asset?
Like many questions in accounting and finance, the answer depends on who you ask.
Let’s ask one of the accounting standard-setters in the United States.
Which one, you ask? You mean, there are more than one?
There are. In fact, you can point to at least four different sources of accounting standards in the United States. They include FASB (the Financial Accounting Standards Board), GASB (the Governmental Accounting Standards Board), FASAB (the Federal Accounting Standards Advisory Board), and the Board of Governors of the Federal Reserve System.
These four entities are matched to the organizations to which their standards apply below:
FASB – Private sector for-profit firms and nonprofit organizations
GASB – State and local governments
FASAB – The federal government of the United States
The Fed – The Federal Reserve Banks (curious, a longer story)
When it comes to basic definitions, there are some subtle but meaningful differences from these various fonts of wisdom.
Let’s ask Uncle Sam. What constitutes an asset, as decreed by FASAB?
FASAB concept definitions are laid out in SFFAC 5 – “Statement of Federal Financial Accounting Concepts 5 -- Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements”
The first definition is for an “asset.”
An asset is a resource that embodies economic benefits or services that the federal government controls.
OK, sounds good, on the surface. But before examining how this definition relates to those decreed by the other four main standard-setters, let’s take a closer look at what Uncle Sam says, and what it may mean.
There’s a troubling story, under this boulder.
Uncle Sam lists “assets” on the balance sheet, like other organizations. Uncle Sam’s balance sheet can be viewed here, on page 60 of the annual Financial Report of the U.S. Government for 2015.
That balance sheet lists eight categories of assets, leading to total assets summing up to $3.9 trillion.
Below that lie the liabilities – totaling $21.5 trillion. A lot more than the assets.
While that may sound troubling, the really troubling story resides in two of the sentences introducing Uncle Sam’s unbalanced balance sheet. We are given these “comforting” words:
“There are, however, other significant resources available to the Government that extend beyond the assets presented in these balance sheets. Those resources include Stewardship Land and Heritage Assets in addition to the Government’s sovereign powers to tax and set monetary policy.”
Wait, now I’m confused, for a few reasons. In the FASAB definition of an asset, we are told that an asset is a “resource,” one that “embodies economic benefits or services that the federal government controls.” The two quoted sentences above assert that the sovereign powers to tax and set monetary policy are resources, and resources possessed by the Government (capital G).
Therefore, they seem to qualify as assets, not just resources, in Uncle Sam’s definition, anyway. One might leap to the conclusion that Uncle Sam is just making things up here, as he goes along.
But I’m going to try to articulate why this is really troubling me.
When I grew up, I learned, or thought I learned, that the United States of America was a special place, a republic governed under a rule of law, with We the People the ultimate sovereign.
Here, the government is telling the people it serves that it possesses sovereign resources to tax them, and inflate the value of their money away.
I think some good perspective on this can be had from a very interesting dude, Juan de Mariana (1536-1624), a remarkable Jesuit scholar who got in some hot water more than once.
Here’s how Murray Rothbard described some of de Mariana’s contributions, which can be argued to underlie some of the greatest contributions of John Locke and other inspirations for our Founding Fathers:
“But Mariana was not so quick to concede the consent of the people. In contrast to other scholastics, who placed the "ownership" of power in the king, he stressed that the people have a right to reclaim their political power whenever the king should abuse it. Indeed Mariana held that, in transferring their original political power from a state of nature to the king, the people necessarily reserved important rights to themselves; in addition to the right to reclaim sovereignty, they retained such vital powers as taxation, the right to veto laws, and the right to determine succession if the king has no heir. It should already be clear that it was Mariana, rather than Suarez, who might be called the forebear of John Locke's theory of popular consent and the continuing superiority of the people to the government. Furthermore, Mariana also anticipated Locke in holding that men leave the state of nature to form governments in order to preserve their rights of private property.”
Why does the financial report of the US government tell us we don’t have what our Founders gave us?