Today's comment is by John Pugsley, Chairman of The Sovereign Society, and
author of many books on investing, politics and economics including his 1981 New York Times bestseller, The Alpha Strategy.

Dear A-Letter Reader,

Recently the Bush Administration cut the fiscal 2006 deficit estimate from US$400 billion down to US$296 billion. Between this optimistic deficit projection and other statistics suggesting the high-powered monetary base has leveled out, analysts are sighing in relief. "Everything that has happened in recent weeks is extremely favorable," said Laurence H. Meyer, a former Fed governor.

Frankly, my fellow sovereign, the deficit figures are all lies. The long-term future is not favorable, it's a looming disaster. Like an iceberg with only a piece of visible ice protruding above the sea, published deficits are nothing compared to the submerged mountain on which they sit.

Assuming you're determined to survive financially, you need to understand how this lie is covered up. The fraud is perpetrated through accounting trickery.

In accounting there are two methods to keep books: on the cash basis or accrual basis. You use the cash basis to balance your checkbook. You add up all the deposits to your account and subtract all the written checks. Deposit US$50,000 in your account in one year and write US$49,000 worth of checks and you appear to have a US$1,000 surplus for the year.

But cash-basis accounting doesn't tell the real story. If you also ran up US$5,000 on your American Express card, which isn't due until next year, accrual accounting would reveal your US$4,000 deficit. Businesses always use the accrual method to report their finances. Public companies are actually forced by law to use accrual accounting. But politicians don't apply that law to themselves.

Government covers its budget deficit by borrowing, issuing T-bonds, T-notes, and T-bills. Over the past few decades, the total of these IOUs has reached a mind-boggling US$8.2 trillion. But the federal government also promises pensions for government employees. It collects Social Security taxes, promising to pay retirement benefits to private sector workers. It collects Medicare premiums and promises to pay future health care costs. None of these promises show up in their cash-basis budget figures. The accumulated cash-basis deficits that comprise the US$8.2 trillion federal debt are only the tip of the iceberg. Estimates of the true, accrued federal debt are now as high as US$65 trillion.

A decade ago Peter G. Petersen, former Chairman of the Federal Reserve Bank of New York, and currently Chairman of the Council on Foreign Relations, wrote, "If federal law required Congress to fund Social Security the way private pensions must be funded, the annual federal deficit would instantly rise by some US$675 billion. Add in our lavish and unfunded federal employee pensions and the deficit would rise by US$800 billion. Add in Medicare and it would rise by more than US$1 trillion." And that was a decade ago-it's much worse today. Petersen then noted, "If private-sector executives ran their pension systems this way, they would be thrown in jail for wholesale violation of federal pension-plan regulations."

"Wall Street has yet to react to these obviously unfinanceable numbers." said Petersen. "When will it? Since financial markets try to anticipate events, the reaction will surely come years before the first Boomers start retiring on Social Security, in 2008. ...we will almost certainly see a full-scale economic emergency as interest rates roar into outer space." Well, 2008 is getting mighty close. The American economy, like the Titanic, is heading full steam ahead into an economic iceberg.

Washington has known about this deficit problem for years, but don't expect the politicians to save you. Social Security, Medicare and government pensions are the "third rail" of American politics. Every politician knows if they touch them, they die.

It's time to don the life jackets. Take the steps The Sovereign Society has been prodding you to take from the beginning. If you have been pondering setting up offshore bank and investment accounts, do it now. If you have been considering establishing dual citizenship, start the process. If you have been considering buying foreign real estate and establishing a residence abroad, get serious about it. And if you've waited to diversify out of the U.S. dollar and into real wealth like precious metals, be wise and beat the rush.

Don't become a victim of the deficit disaster.

JOHN PUGSLEY, Chairman
On behalf of The Sovereign Society

EDITOR'S NOTE: The above comment originally appeared in the "Chairman's Corner," of our members' only newsletter, The Sovereign Individual . Each month The Sovereign Individual is packed with 16 pages of our experts' latest asset protection ideas, investment picks, tax information, currency recommendations, and privacy techniques. Receive the next 12 issues when you join The Sovereign Society today for our lowest price ever. Plus access all our past issues online as soon as you order! Click here to learn more. 

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