This month’s keynote focuses on resetting our thinking after the latest blowout. Some very important big picture changes took place in the past month and we outline those and what the effects are likely to be moving forward. Despite the past 3 days of victories in the equity markets, make no mistake this is nowhere near over.

In energy, we dovetail the recent move to effectively double the fuel standard with the constant insistence by energy market ‘insiders’ and government types that we’re literally drowning in oil. Something isn’t right here and we tear these arguments apart.

In metals, we look at gold’s proxy performance for the stability of the financial system now vs. 2008 and we demonstrate why what just happened in the markets was nothing like 2008 despite the media’s persistent rhetoric to the contrary. We also discuss the economic ‘kill-switch’ built into the debt deal and the economic equivalent of a commercial signal failure. If you want to know the intricacies of how everything is bolted together, this is information you don’t want to miss.

In the market update, we show our long-term analysis from May 2009. It was right on target and has developed precisely as outlined over two years ago. This has big implications for anyone holding paper assets and needs to be part of everyone’s decision-making process.

This is probably the most important issue of CI that we’ve ever released. If you’re a subscriber or client, take some time and seriously digest its contents. If you’re on the fence, consider becoming a subscriber. We realize times are tough and as such have lowered prices to reflect the troubles people are having financially. This is much more than just a stock-picking newsletter; much of our research pertains to the general economy and how those developments affect consumers at a variety of levels. If you find our work beneficial, please refer us to a friend or colleague; it is how we are able to continue providing this analysis.

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Lowering the nation’s rating one-notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bi-partisan agreement reached this week to find $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would have no luck achieving more savings later on.

The decision came after a day of furious back-and-forth between the Obama administration and S&P. Government officials fought back hard, arguing that S&P made a flawed analysis of the potential for political agreement and had mathematical errors in its initial analysis, which was submitted to the Treasury earlier in the day. The analysis overstated the U.S. deficit over 10 years by $2 trillion.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesperson said Friday.

The downgrade will push the global financial markets into unchartered territory after a volatile week fueled by concerns over the European debt crisis and the slowdown in the U.S. economy.

Analysts say that, over time, the downgrade is likely to push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up costs for borrowing for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

But the exact impact of the downgrade won’t be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the impact on the markets may be modest because they have been anticipating an S&P downgrade for weeks.

Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up, but were closely monitoring the situation.

S&P’s action is the most tangible vote of disapproval so far by Wall Street on the deal between President Obama and Congress to cut the deficit by at least $2.1 trillion over 10 years. S&P has said that it wanted at least $4 trillion of deficit reduction.

The downgrade is likely to be used as a weapon by both Republicans and Democrats as they argue the other side has not taken deficit reduction seriously.

Other credit rating agencies — Moody’s Investors Service and Fitch Ratings — have decided not to downgrade the United States credit rating. But they’ve warned that, if the economy deteriorates significantly or the government does not take additional steps to tame the debt, they could move to downgrade too.

In April, S&P first said it might downgrade the United States credit rating on concerns that lawmakers would not be able to come to a deal on reducing the debt. In July, as efforts stagnated, S&P said the odds of a downgrade within three months had moved up to 50 percent.

The ultimate deal between Obama and Congress ultimately failed S&P’s benchmark. Obama administration officials have been critical of S&P for making what was essentially a political judgment and for failing to conclude that the country was making a strong first step to reducing its deficit.

David Beers may be the most influential political commentator in the U.S. right now, even though he’s hardly a household name, that isn’t technically his job and he’s only visiting.

As the London-based managing director of sovereign credit ratings at Standard & Poor’s, Beers will help determine whether the U.S. government’s credit rating will be downgraded as a result of the battle over raising the debt limit.

His company has gone beyond competing credit rating agencies to say that it isn’t enough for lawmakers to agree to lift the government’s $14.3 trillion debt ceiling. Congress and the White House also must agree to a deficit-reduction package to avoid a downgrade in the government’s AAA credit rating.

In an interview this week at Union Station, just blocks from the U.S. Capitol, Beers said he views the debt limit fight as a test of lawmakers’ willingness to tackle the deficit.

“For us, the issue is not the debt limit — it’s the underlying fiscal dynamics,” said Beers, who has been rating governments for the company for 20 years. “It’s not obvious to us that this political divide that is proving so difficult to bridge is going to be any more bridgeable three months from now or six months from now or a year from now.”

He said he didn’t know when an S&P committee would decide whether to cut the credit rating. “Depends on events,” he said.

Downgrade Impact

A decision to cut the government’s credit rating would likely increase Treasury rates by 60 to 70 basis points over the “medium term,” raising the nation’s borrowing costs by $100 billion a year, JPMorgan Chase & Co.’s Terry Belton said. It could also hurt the rest of the economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on treasuries.

Yesterday, the markets showed little debt ceiling concerns, as seen in 10-year Treasury note yields hovering around 3 percent, below the average of 4.05 percent over the last decade, and the average of 5.48 percent when the country was running budget surpluses between 1998 and 2001.

On Capitol Hill, House and Senate leaders were trying to advance deficit reduction packages that would clear the way for a vote on the debt ceiling increase that the Treasury Department says must come by Aug 2.

The threat of a downgrade has made Standard & Poor’s a target for critics chafing at demands from a company that blessed the mortgage-backed securities that led to the financial crisis.

S&P Hill Critics

An April report by Senator Carl Levin, a Michigan Democrat, and Senator Tom Coburn, an Oklahoma Republican, concluded the credit agencies “weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom.”

In an interview, Levin said he views those faults as conflicts of interest issues that are separate from the S&P’s sovereign ratings work, which he declined to criticize. “My gut tells me that they’re calling it as they see it and, hopefully, they’re not impacted by their previous failures to call them as they should have seen it,” Levin said.

Senate Majority Leader Harry Reid, a Nevada Democrat, took a different view. “I wish they had made a few demands when Wall Street was collapsing,” said Reid. “They were silent then. Maybe they’re trying to get more energized.”

July Warning

At issue is a warning the company issued July 14 that there is a 50 percent chance S&P would downgrade the government’s credit rating within three months if lawmakers didn’t approve a “credible” deficit reduction package as part of a plan to raise the debt cap.

It was the latest in a series of demands from the company over the past year. In April, S&P said there was a one-in-three chance it would downgrade the government within two years; in October, it said lawmakers had as many as five years to address long-term deficits.

In its July report, the company said, “We believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years.”

Critics say the company is misreading the political dynamics in Washington and that it shouldn’t engage in political prognosticating at all.

“If we fail to increase the debt ceiling, they have every right to take the U.S. down as many notches as they want,” said Jared Bernstein, former economic advisor to Vice President Joe Biden. “I don’t look to S&P for political analysis” and “their job is not to try to do political crystal-ball gazing. Their job is to assess the reliability of U.S. debt.”

U.S. Can Meet Obligations

Bernstein said, “Nothing fundamental has changed in the ability of the U.S. government to fully meet its debt obligations.”

IHS Global Insight Chief Economist Nariman Behravesh said S&P has unrealistic demands because lawmakers are unlikely to agree to a major deficit reduction package until after next year’s elections. “If they really think there is going to be a comprehensive solution before 2012, they are grossly mistaken,” he said.

Where Beers sees ominous gridlock over the debt, Behravesh sees progress. “Think about where we were six months ago: We were talking about stimulus,” he said. “The good news is U.S. politicians are talking” about trillion-dollar budget cuts.

He said S&P is “itching to pull the trigger” on a credit downgrade, saying “it’s almost like they’re overreacting in the other direction” in order “to make up for past errors.”

Former Congressional Budget Office Director Doug Holtz- Eakin, who advised the 2010 Republican presidential campaign of John McCain, said S&P is right to question the political will in Congress to address the deficit because it’s the central question surrounding the debt.

Political Wherewithal

“There is no question that the U.S. economy remains the largest, strongest on the globe and it has the financial wherewithal to pay its debts,” he said. “The question is, is that financial wherewithal matched by political wherewithal? And that’s what they’re trying to find out.”

Beers said critics of the company’s record during the housing crisis “know nothing about our sovereign ratings, which have an excellent track record.” He said it’s impossible to assess a government’s credit rating without making judgments about its politics.

“Economic policy is part of a political process,” he said. “Every government has to make choices, and it has to do it in some political context, and we have to look at that and decide how plausible that is.”

‘Sheer Difficulty’

The gridlock over the debt limit “highlights the sheer difficulty” lawmakers are having coming to agreement, he said, which has prompted S&P to shorten the timeframe over which it wants to see major cuts. He is skeptical that next year’s election will be “that decisive on this issue.”

U.S. lawmakers are lagging behind other similarly rated governments that have also faced debt challenges, he said, pointing to countries such as Britain that are implementing plans to tighten budgets.

“This whole issue of finding common ground has been on the table since March and it’s not as if people aren’t trying,” he said. “You have to make judgments about these sorts of things.”

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

In energy, we do a reset on the global geopolitical picture. The SPR still has not been tapped as of yesterday’s EIA energy report despite assurances to the markets that it would be done. It is now looking like this announcement was more fluff than substance to knock prices down a few bucks knowing they’d go right up again as soon as Bernanke breathed the possibility of another round of public destruction of the dollar (QE).

Gold has hit another record high on the above news and even silver got into the action this week, rising almost 10% thus far. What damage have the CME margin hikes done and more importantly, cui bono? Who benefitted from the big hit on silver (which did bleed into some other commodities as well)? We lay out the big picture on metals. Summer is generally a slow time for metals, but they’re already heating up and it is only July.

We’ll lay out our unique perspective on our newest additions to the model portfolio. It will be quite surprising to many, but the rationale is simple and easy to follow. We also update on our interest rate model, which hit another home run recently as well as other conditions in the markets as well as an important development in the big picture for equity markets. Don’t miss an issue!

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Moody’s Investors Service put the U.S. under review for a credit rating downgrade as talks to raise the government’s $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to a default.

The Aaa ratings of financial institutions directly linked to the U.S. government, including Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, were also put on review for cuts, Moody’s said in a statement today.

The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.

“It certainly underscores the importance of passing the debt ceiling and not putting us in default status, and making sure there’s a longer term fiscal plan to contain spending and the deficit we’ve been running up over the last few years,” said Anthony Cronin, a Treasury bond trader at Societe General SA in New York, one of the 20 primary dealers that trade with the Federal Reserve. “Maybe it’s the impetus to say we’ll need more of a concession.”

Dollar, Bonds

The dollar weakened and Treasuries were little changed after the Moody’s statement. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, including the euro, yen and pound, slid for a second day, shedding 1.1 percent.

The 10-year note yield was little changed at 2.88 percent at 5:31 p.m. in New York, according to Bloomberg Bond Trader prices, after increasing earlier as much as eight basis points to 2.96 percent. The yield dropped to 2.81 percent yesterday, the lowest since Dec. 1. The price of the 3.125 percent security due in May 2021 declined 1/32, or 31 cents per $1,000 face amount, to 102 2/32.

Treasury Secretary Timothy F. Geithner said he has taken steps to prevent a federal default until Aug. 2, using accounting measures that involve two retirement funds. The U.S. reached its borrowing limit on May 16.

The Moody’s announcement is a “timely reminder” and that Congress must “move quickly” to avoid default, the Treasury said in a statement today.

Debt Talks

“What we’re looking for is a raising of the limit. It doesn’t matter the process that they get there,” Steven Hess, the senior credit officer at Moody’s in New York, said in a telephone interview. “The rating outlook will be determined by the longer-term debt trajectory.”

Senate Republican Leader Mitch McConnell proposed a “last choice option” yesterday that effectively would grant President Barack Obama power to raise the debt limit in installments. McConnell’s plan would let the president raise the limit in three stages unless Congress disapproves by a two-thirds majority, while Obama would also be required to propose offsetting spending cuts. The spending reductions would be advisory, and the debt-ceiling increase would occur regardless of whether lawmakers enact the cuts.

“I think it reflects what we all know — that this is a serious time and serious discussions and we can’t continue to have people not contribute to solving this problem,” said Senator Patty Murray of Washington, the No. 4 Democratic leader in the chamber.

Boehner Reaction

“As Speaker Boehner has warned for months, if the White House does not take action soon to address our nation’s debt crisis by reining in spending, the markets may do it for us,” said Michael Steel, spokesman for House Speaker John Boehner, Republican of Ohio. “This action by Moody’s today reinforces the Speaker’s warning.”

Standard & Poor’s put the U.S. government on notice on April 18 that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. The firm said at the time that there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits.

S&P would lower its sovereign top-level AAA ranking to D, the last rung on its scale if the U.S. can’t pay its payments because of a failure to raise the debt ceiling, John Chambers, chairman of the company’s sovereign rating committee, said June 30. Moody’s said it would probably assign a position in the Aa range, or within three steps of its highest level.

LONDON (Reuters) – The risks of the U.S. losing its prized triple-A rating over the medium term have increased as the country faces a political impasse and nears its debt ceiling, Standard and Poor’s said on Tuesday.

While the ability to adapt both fiscal and monetary policy was a positive for the United States, the risk of a credit rating downgrade had increased due to a lack of political consensus on how to employ that flexibility, Moritz Kraemer, head of sovereign credit ratings for Europe at Standard & Poor’s, said on Tuesday.

“The problem is this flexibility needs to be employed and for that you need political consensus. That’s not very visible right now,” he said.

The United States is expected to exhaust its ability to meet financial obligations by August 2, but the Treasury department has said that date could shift.

“The downside risks in the medium term have increased and we did assign a negative outlook that signifies there’s a one in three chance the rating might go down in the next few years,” Kraemer told a Euromoney bond conference in London.

Standard & Poor’s threatened in April to downgrade the United States’ AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

Earlier on Tuesday, Fitch ratings said it saw risks of a debt default in the United States, whose top-rated bonds may suffer if the country doesn’t lift its fiscal borrowing ceiling.

IMF economist Paul Mills also took a negative line on the politics surrounding the U.S. debt situation, speaking at the conference.

“I don’t think the debate has yet even begun to understand how big a fiscal retrenchment is going to be needed,” Mills said.

“The parameters of debate are still in the foothills of the problem… we may well see an initial plaster applied until the presidential election then a more fundamental solution after that.”

ESM CREDITOR STATUS

Kraemer said a move to drop preferred credit status for the European Stability Mechanism — the region’s permanent safety net due to come into effect mid-2013 — would help Portugal and Ireland in their efforts to rebuild investor confidence.

Euro zone finance ministers decided on Monday that the regions’s permanent bailout fund will not have preferred creditor status if it lends to Greece, Ireland or Portugal, but would get paid back first in other cases.

Kraemer also said there was little progress in resolving Greece’s debt crisis after a weekend meeting of EU finance ministers deferred a decision to give Athens funding to avoid defaulting next month.

All but one of the 400 participants at the panel discussion — including fund managers, market strategists and economists — thought Greece would avoid another debt restructure even if it secured a new aid package as expected by next month.

Mills said that even though markets had a broad idea of banks’ exposure to Greek sovereign bonds, the risks of a widespread impact on interbank funding markets remained high.

“The concern is the reputational risk to bank funding markets, which will, I think, be the bigger channel (for contagion pressure),” Mills said.

“Peripheral banks are well behind the pace on the debt they plan to issue this year and so that’s increasing the pressure in Spain, Portugal and Ireland.”

The deepening equity purge, coupled with continued weakness in silver cost the model portfolio about 3% this past month. While we’re not at all happy with 3%, the paper equity markets are down now around 6% during the same period, so that is encouraging. Our two newest components in the dividend slice, ironically, are both showing modest gains since we added them at the end of April and are providing some much-needed diversification.

This month’s keynote is called ‘Crash Signature’ and takes a look at what a US default will look like on Main Street. We cover the idea of the outright default as well as the slower, inflationary type in situ default where the Fed assists the USGovt in hyperinflating away its debts. Our major creditors are already onto this game. There is actionable information in this article as it gives you some easy steps that will help mitigate the effects of either scenario.

Energy continues to be a hot area. OPEC is now publicly admitting the likelihood of a shortage of crude oil this fall. Saudi Arabia has promised (once again) to pump all that is needed. We doubt they can. We are not alone. Resource constraints are the order of the day moving forward. Better get used to it. Oddly, the same types of changes in living style that will help you deal with a default are the same types of measures that will help you lessen the blow of peak oil.

In our metals report, we analyze CME’s latest salvo against the precious metals markets. They are losing their metal and the battle to keep prices contained. These margin requirement hikes are one of the last weapons left in their arsenal and the fact they are using it means we’re that much closer to the end of the precious metals cartel. We are still offering gratis consults to any of our year or longer subscribers on precious metals. With all the dislocations in the markets right now and what is likely to get even worse moving forward, why not take advantage? It is a free service for any subscriber who has been with us at least a year or is currently paid up for a subscription of a year or more. If you know someone who might benefit from this valuable service, please pass our information along to them – it is how we grow.

Greek police have fired teargas at protesters outside parliament as MPs prepared to debate new austerity measures required for the EU and IMF bail-out package.

Demonstrators who broke off from a strike rally in Athens responded by throwing yoghurt and stones.

Prime Minister George Papandreou faces the risk of a revolt in his Pasok party over the austerity package.

He has proposed a unity government to pass the measures, state TV reports.

He is seeking support for a new austerity programme of 28bn euros (£24.6bn; $40.5bn) in cuts to take effect from 2012 to 2015.

Thousands are taking part in a general strike, the third in Greece this year.

Ports, public transport and banks have been badly disrupted as the main public- and private-sector unions go out on strike.

State-run companies have also joined the walkout, while hospitals are only offering emergency care. However, airports are operating normally after air traffic controllers called off their strike.

A top credit agency has cut Greece’s rating, making it the least credit-worthy nation out of 131 countries it monitors.

The Greek government said the downgrade by Standard & Poor’s – from B to CCC – ignored its efforts to secure funding.

In order for the next tranche of rescue loans to go through, parliament must adopt the new austerity plan by the end of June.

‘Fight the battle’

Police thwarted protesters who were attempting to blockade parliament and stop MPs getting in for the debate.

They sealed off the roads leading to Syntagma Square and created a pathway for deputies.

The Greek demonstrators are calling themselves the “indignants”, linking themselves to Spanish anti-austerity protesters who set up camps in Madrid and Barcelona.

The square is awash with Greek and Spanish flags, as well as banners reading “Resist” and the battle cry from the Spanish civil war, “No pasaran” (they shall not pass), the AFP news agency reports.

One MP defected from Mr Papandreou’s Pasok party on Tuesday, leaving it with only 155 of the chamber’s 300 seats.

“You have to be as cruel as a tiger to vote for these measures. I am not,” George Lianis, a former sports minister, said in a letter to parliament’s speaker announcing his departure from the parliamentary group.

At least one other Pasok MP has threatened to vote against the new programme of cuts and privatisation of state assets.

Another 14 MPs are wavering in their support for the austerity plan, our correspondent says.

Mr Papandreou held talks on Wednesday with Greek President Karolos Papoulias, telling him that “a national effort” was required.

“We are at a historically crucial moment and a time of crucial decisions,” Mr Papandreou said, according to a transcript released by his office.

“In any case, we will move forward with this sense of responsibility and the necessary decisions.”

Possible contagion

Meanwhile, eurozone finance ministers have failed to agree on how to make private creditors contribute to a possible second Greek bail-out.

Ministers meeting in Brussels continued their discussions late into the night on Tuesday on ways of making private bondholders share the cost of a second rescue package without throwing financial markets into turmoil.

As a result of their failure to reach a deal, the cost of insuring Greek debt against default shot to an all-time high.

In a sign of possible contagion from the Greek crisis, credit rating agency Moody’s said it might downgrade the three largest banks in France because of their exposure to Greek debt.

Share prices for BNP Paribas, Credit Agricole and Societe Generale all fell as a result.

France appealed for calm, saying it opposed a Greek restructuring which could entail write-offs for private banks.

“The French position is voluntary – no restructuring, no credit event and in line with the ECB,” government spokesman Francois Baroin told reporters in Paris.

The EU and IMF are demanding the measures in return for the release of another 12bn euros in aid next month which Athens needs to pay off maturing debt.

When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco’s Bill Gross told CNBC Monday.

Getty Images

Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.

The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.

Taken together, Gross puts the total at “nearly $100 trillion,” that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.

“To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a live interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”

Gross spoke following a report that US banks were likely to scale back on their use of Treasurys as collateral against derivatives and other transactions. Bank heads say that move is likely to happen in August as Congress dithers over whether to raise the nation’s debt ceiling, according to a report in the Financial Times.

The move reflects increasing concern from the financial community over whether the US is capable of a political solution to its burgeoning debt and deficit problems.

“We’ve always wondered who will buy Treasurys” after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. “It’s certainly not Pimco and it’s probably not the bond funds of the world.”

Pimco, based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world.

Gross confirmed a report Friday that Pimco has marginally increased its Treasurys allotment—from 4 percent to 5 percent—but still has little interest in US debt and its low yields that are in place despite an ugly national balance sheet.

“Why wouldn’t an investor buy Canada with a better balance sheet or Australia with a better balance sheet with interest rates at 1 or 2 or 3 percent higher?” he said. “It simply doesn’t make any sense.”

Should the debt problem in Greece explode into a full-blown crisis—an International Monetary Fund bailout has prevented a full-scale meltdown so far—Gross predicted that German debt, not that of the US, would be the safe-haven of choice for global investors.

The federal government’s financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.

Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check.

The $61.6 trillion in unfunded obligations amounts to $534,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

“The (federal) debt only tells us what the government owes to the public. It doesn’t take into account what’s owed to seniors, veterans and retired employees,” says accountant Sheila Weinberg, founder of the Institute for Truth in Accounting, a Chicago-based group that advocates better financial reporting. “Without accurate accounting, we can’t make good decisions.”

Michael Lind, policy director at the liberal New America Foundation‘s economic growth program, says there is no near-term crisis for federal retirement programs and that economic growth will make these programs more affordable.

“The false claim that Social Security and Medicare are about to bankrupt the United States has been repeated for decades by conservatives and libertarians who pretend that their ideological opposition to these successful and cost-effective programs is based on worries about the deficit,” he says.

USA TODAY has calculated federal finances based on standard accounting rules since 2004 using data from the Medicare and Social Security annual reports and the little-known audited financial report of the federal government.

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund’s key asset: federal IOUs.