A report scheduled to be released by the Treasury Department tomorrow is expected to show the true deficit in the Bush administration's 2006 federal budget to be an astounding $3.5 trillion in the red, not $248.2 billion as previously reported.

"The Bush administration is running a federal budget deficit at an unsustainable, system-dooming pace of about $3.5 trillion a year, econometrician John Williams, who publishes the website Shadow Government Statistics, told WND.

Williams' argument is fully validated in the Financial Report of the United States, a little-known report Congress has mandated that the Treasury Department publishes each year, reporting the federal budget on a GAAP accounting basis, not on a cash accrual basis.

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The 2006 edition of the Financial Report of the United States is due out tomorrow.

"Typically, the Treasury reports the budget deficit on current accounts basis. That's why Treasury announced recently that the 2006 federal budget deficit was going to be $248.2 billion. But it is a gimmick," Williams claimed.

"When we see the Treasury report on Friday we are probably going to find out that the real 2006 federal budget deficit is more like $3.5 trillion."

Williams predicts, however, the mainstream media won't report it.

"It's not the type of news Reuters, Bloomberg and the Wall Street Journal like to broadcast to investors and the American public," he said. "Besides, the financial press won't take the time and effort to analyze the figures and comb through the footnotes. The report is going to be released on Friday and most financial reporters aren't accountants."

Why the huge discrepancy between the two figures?

"The $248 billion federal budget deficit figure results from what basically amounts to a cash flow analysis," Williams explained. "On a cash basis, the Treasury takes all the tax revenue, including Social Security taxes, as current income. The trick is that Treasury essentially steals the money that comes in on Social Security taxes, without accounting for any offsetting Social Security liability. When you run your accounting that way, the Treasury gets to report a federal budget deficit that dramatically reduces the real figure."

What's different about the anticipated 2006 Financial Report of the United States?

"Congress a few years ago mandated that the Treasury had to report one report each year that used GAAP accounting," Williams told WND. "Then, when you figure in all liabilities including Social Security and Medicare, the real 2006 deficit is huge by comparison. What I expect to show up on Friday is a real federal budget deficit of $3.5 trillion or more, not the $248.2 billion earlier reported."

"Even worse," Williams continued, "the U.S. Government's negative net worth widened to $49.4 trillion in 2005. For the first time, total government liabilities have topped $50 trillion, and the number is continuing to grow. The United States is bankrupt, whether the Bush administration wants to admit it or not."

A quick study of the following table Williams has posted on his website shows the alarming nature of the Bush administration federal budget shortfalls when GAAP accounting methods are used and all Social Security and Medicare liabilities are fully realized.

Source: John Williams, Shadow Government Statistics, on ShadowStats.com

How serious a problem are federal deficits of this magnitude?

"A federal budget deficit in the trillions of dollars is beyond the reach of fiscal control," Williams answered. "Even if the federal government raised individual and corporate income taxes to 100 percent, simply confiscating every penny every business and person in the U.S. made, we would still have a federal deficit."

"There are lots of people who know that the federal deficit is in the trillions," Williams continued. "The problem is that few dare sound the alarm. The magnitude of the budget deficit problem is just too enormous and neither political party has the courage to address the problem."

Williams is clear about the coming danger.

"The United States is bankrupt," he insisted. "With less than one-tenth of the actual deficit being reported each year, a cumulative negative net worth exceeding $50 trillion has built up in stealth to where the total obligations of the U.S. government are now more than four times our annual gross domestic product.

"The Treasury numbers in the Financial Report of the United States are hard," Williams insisted, "and the doomsday is not far off. Still, the Treasury is going to report the numbers on a Friday and I don't expect you will hear much about it."

Williams' website issues a dire warning to WND:

"Indeed the unfolding fiscal nightmare likely will entail a U.S. hyperinflation and a resulting collapse in the value of the world's primary reserve currency, the dollar. When this starts to unravel it will unravel fast. I don't know whether it will be the dominant issue in the 2008 presidential election, but I believe it will be by 2012."

The Treasury Department confirmed to WND the 2006 Financial Report of the United States will be issued tomorrow at 11:00 a.m. Eastern time at a Treasury Department press conference. The Treasury Department declined to comment on the content of the report.

When the report is released, Treasury Secretary Henry Paulsen and Federal Reserve chairman Ben Bernanke will still be in China. Just before Thanksgiving, China started a dollar sell-off by suggesting Beijing wanted to hold less than the current 70 percent of its $1 trillion in foreign exchange reserves in U.S. dollars. Paulsen and Bernanke plan to explore with China ways the U.S. can reduce the large and growing U.S. trade deficit.

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