In many ways, we’ve already fallen off the cliff. The focus by government and market analysts on the potential medium-term impact on GDP has obscured some themes that deserve far greater attention.

Entitlement reform is no longer something that can be pushed aside. If the government had used GAAP accounting (generally accepted accounting principles), as do practically all private-sector companies (and even local governments), the deficit in 2011 would have been $3.7 trillion higher. This would have been on top of the $1.3 trillion official deficit that was recorded by the Congressional Budget Office and the president’s Office of Management and Budget.

While John Williams of Shadow Stats has been writing about this theme for years, mainstream outlets like USA Today are starting to cover how the government basically exempts itself from including the costs of promised retirement and healthcare costs in its deficit calculation. Including the growing costs of future Social Security and Medicare liabilities, the deficit in 2011 was $5 trillion.

Despite an accumulated “Trust Fund” of nearly $3 trillion, Social Security is already losing $165 billion in cash annually. This is partly due to the recent payroll tax cut. But the financial capacity of the Trust Fund also peaked in 2008 and is set to decline steadily for the next 30 years. At the same time, Medicare expenses are shown to exceed dedicated payroll tax receipts by $255 billion per year. The current accounting conventions distract us from the obviously perilous situation of spending $400 billion more per year on these programs than the U.S. is taking in – even before considering the much larger annual cash flow imbalances of future liabilities.

For the government to meet its future Social Security promises, it would have to set aside more than $20 trillion and find a place to park these reserves to earn some interest. USA Today notes that this figure is almost double what would have been required as recently as 2004.