Next month, the Federal Treasury will annouce that the federal budget deficit for fiscal 2007, which ends September 30, will have dropped to a mere $158 billion, give or take a few bucks.

This would mean that the deficit has been reduced by $90 billion since 2006.

Of course, this will be toasted by the White House and Treasury as a great accomplishment.

But there's a nasty secret you may not be are aware of. If you use realistic numbers rather than what has been dubbed by industry experts as " WAAP - Washington Accepted Accounting Principles" - the real federal deficit for the current fiscal year is more than 2-1/2 times the stated deficit. Its actually closer to $335 billion.

So why is this really important? Because there's been so much joyous noise about the budget emanating from Washington, despite the subprime mess and market meltdowns, which, coincidentally, doesn't bode well for future tax collections either. It looks like all of Bush's wealthy-elite buddies that received massive tax cuts for the last several years didn't reinvest the money like we all believed they would. So now my natural contrarianism compels me to bomb the buzz machine: even a first-year finance student would catch these warning indicators.

Instead, so many investors and speculators are fleeing to the supposed safe haven of federal treasury securities lately that perhaps the time has arrived to examine the budget more closely.

If a publicly traded corporation tried keeping books by the aforementioned WAAP rather than by the Generally Accepted Accounting Principles (GAAP), its auditors would be on the phone to the SEC before you could say "Sarbanes-Oxley."

But since this is the federal government, it operates a unique budget accounting system, regardless of whether the Democratic or Republican party is in the executive office. Minimizing the actual size and impact of the deficit, in effect making it look smaller than it really is, is of great advantage to the those in power, regardless of whether they utilize tax-and-spend or borrow-and-spend policies.

Using numbers from the recent update issued by the nonpartisan Congressional Budget Office, we can examine how this works. Keep in mind that this is a simplified version to keep your eyes from glazing over. You can find a more detailed version at the CBO website.

To begin with, Social Security will take in about $78 billion more in payroll and income taxes than it shells out. The Treasury takes that cash, gives the trust fund IOUs for it, and spends it. That $78 billion isn't in the stated deficit.

Next, the Treasury will fork over $108 billion of interest on the trust fund's $2.2 trillion of Treasury holdings - but will give the trust fund IOUs, not cash. They won't count in the deficit either. Add that $186 billion to the stated budget deficit, and it more than doubles, to $344 billion.

The stated deficit, you see, measures how much less cash Uncle Sam takes in than he spends. That's fine for gauging the deficit's impact on the economy, which is what budget experts generally do. But if you're trying to assess Uncle Sam's overall fiscal condition, as the White House portends to do with its annual budget reports, you should count those IOUs in the deficit because they have to be paid someday.

Moving on, we end up with a total deficit of more than $400 billion by undoing another piece of WAAP ledger-demain: the $97 billion increase in Treasury securities held by "other government accounts," such as federal employee pension funds.

Thanks to the magic of Washington math, that doesn't increase the deficit, even though it increases the government's overall debt.

Unfortunately, there's an added layer of bad news: Congressional Budget Office Director Peter Orszag warns that at their current growth rate, Medicare and Medicaid will devour 20 percent of our gross domestic product in 2050 - more than today's entire federal budget.

Don't take next month's budget report at face value!