Adam Smith warned us about one “juggling trick”: governments printing money to pay their debts. As Thomas Savidge explained so clearly in his latest article, that trick lets politicians enjoy today’s spending while shifting tomorrow’s pain onto future taxpayers and currency holders. It blurs the bright line between fiscal and monetary policy, erodes public wealth, and has doomed empires from Rome to Argentina.
Yet Smith’s “juggling trick” has an equally deceptive companion: the federal government’s own accounting and reporting rules. These rules let Washington claim “balanced” budgets, manageable deficits, and a debt ceiling that somehow never quite captures the full picture. Like the monetary jugglers Smith condemned, fiscal accountants juggle present obligations against future promises, on-balance-sheet liabilities against off-balance-sheet black holes, and cash-flow optics against economic reality. The result is the same: politicians spend without the immediate political cost of taxing, the public is lulled into complacency, and the eventual reckoning grows more painful.
Our latest Financial Report of the United States Government (FY 2025) makes the sleight of hand impossible to ignore. We found that the U.S. Government’s overall financial condition worsened by $11.6 trillion in 2025. The mounting debt burden of $170.3 trillion represents the total benefits promised to citizens, yet the federal government has no clear idea where the money to pay for them will come from. The Treasury Department only included a fraction, $269 billion, of Social Security and Medicare liabilities on the federal balance sheet because, according to government documents, recipients do not have the right to any benefits beyond those to be paid in the near term, and laws to reduce or stop future benefits can be passed at any time. Yet these enormous obligations are kept largely off the core balance sheet, treated as “social insurance” rather than contractual liabilities. The juggling continues.
The Obfuscation Decision Does Not Happen Overnight
Just as debt monetization rarely comes in the form of a sudden default, accounting gimmicks accumulate gradually. Politicians discover they can fund expansive programs today while deferring the accounting recognition of their costs. Future taxpayers and future voters pick up the tab.
The federal government, like many states, operates two sets of books. The budget uses a cash-like or “modified accrual” basis that conveniently omits long-term obligations such as retiree health care, pension shortfalls, and the full present value of entitlement promises. The audited Financial Report, prepared under standards set by the Federal Accounting Standards Advisory Board (FASAB), does a better job of accrual accounting, but even it keeps the largest liabilities at arm’s length. Social Security and Medicare are disclosed in supplementary information rather than recognized as full liabilities on the primary balance sheet. The result? Elected officials can tout “balanced budgets” or modest deficits while the real economic burden balloons.
And the largest driver of all, promised future benefits for seniors, is simply left out of the primary deficit calculation, left off of the balance sheet entirely, and therefore never factored into the “debt ceiling” debates that dominate the evening news.
The economic distortion is identical to the one Smith described. By hiding today’s spending commitments, flawed accounting rules encourage more borrowing, more promises, and less restraint. They crowd out private investment, raise future tax burdens, and erode trust in institutions. When markets finally lose confidence in the numbers, the correction is far more brutal than it would have been if honest accounting had forced discipline earlier.
Accounting Accommodation in the United States
As noted in Savidge’s article, the United States once prided itself on institutional guardrails. The gold standard constrained monetary excess; the Treasury-Fed Accord of 1951 sought to separate debt management from money creation. Yet both fiscal and monetary boundaries have eroded. Accounting boundaries have fared even worse.
FASAB, the body that sets federal accounting standards, is itself a creature of the executive and legislative branches it is supposed to oversee. Unlike the private sector’s independent Financial Accounting Standards Board, federal accounting rules are shaped by the very agencies and politicians whose performance they measure. The result is a system that systematically understates liabilities and overstates fiscal health.
This accommodation is bipartisan. Both parties have benefited from the ability to promise generous entitlements without immediately recording their cost. The consequence is a federal balance sheet that looks superficially manageable until one reads the footnotes. The latest report warns, yet again, that “the current fiscal path is unsustainable.” But because the accounting rules allow the unsustainable path to remain hidden in plain sight, the political incentive to change course remains weak.
Compare this to the private sector. A corporation that failed to record pension liabilities or that understated loan-loss reserves would face SEC enforcement actions, shareholder lawsuits, and possible delisting. Government faces no such market discipline. The bond market still treats U.S. Treasuries as the world’s safest asset, partly because investors trust that the Fed can always print dollars to repay them. That faith, however, rests on the same blurred lines Savidge warned about. Accounting opacity only makes the eventual adjustment more destabilizing.
Restoring Order Between Accounting and Reality
If the United States is to avoid the failures Smith warned about, and the parallel failures our own accounting rules enable, we must reinforce credible institutional boundaries here as well.
First, require full accrual accounting for all obligations, including the present value of Social Security and Medicare promises. These are not optional; they are legally mandated benefits that future taxpayers are on the hook to fund. Keeping them off the primary balance sheet is the fiscal equivalent of pretending a mortgage does not exist because the payments start next year.
Honest accounting is the first step. Without it, every other reform—whether a new monetary rule or a balanced-budget amendment—can be gamed by the same jugglers who write the rules.
The Need for Boundaries
Adam Smith understood that the “honor of a state is surely very poorly provided for” when it resorts to juggling tricks to disguise bankruptcy. The monetary juggling act he condemned remains dangerous. The accounting juggling act that accompanies it is no less so. Both erode prosperity, shift burdens to the unborn, and undermine the institutional guardrails that separate sound policy from political expediency.
Good fences make good neighbors, Robert Frost reminded us, and Savidge echoed. It is time to erect a sturdy fence between the government’s spending ambitions and the accounting rules that are supposed to measure them honestly. Until federal accounting and reporting rules reflect economic reality rather than political convenience, the juggling will continue, the debt will grow, and Smith’s warning will remain unheeded.
The choice is ours. We can keep juggling—or we can finally tell the truth.