"The right hand obviously does not know what its left hand is up to. Or does it?" he asked.

Irene Khan, secretary-general of the London-based Amnesty International (AI), is equally harsh in her reaction. ''It is ridiculous to talk about providing humanitarian aid on the one hand, and to provide arms on the other,'' she says.

In the face of such human suffering in Lebanon and Israel, Khan says, "It is imperative that all governments stop the supply of arms and weapons to both sides immediately."

Asked if there is a contradiction between the two, U.S. President George W. Bush told reporters last week: "No. I don't see a contradiction in us honoring commitments made prior to Hezbollah attacks into Israeli territory."

Bush also made an obvious slip when he said: "I am concerned about loss of innocent life, and we will do everything we can to help move equipment... I mean, food and medicines, to help the people who have been displaced and the people who suffer."

In a statement released last week, AI quoted British press reports relating to two chartered Airbus A310 cargo planes filled with GBU 28 laser-guided bombs containing depleted uranium (DU) warheads and destined for the Israeli air force landing at Prestwick airport, near Glasgow. The planes landed for refueling and crew-rests after flying from the United States.

"Other reports claimed that the USA has requested that two more planes be permitted to land in the UK en route to Israel in the next two weeks. The reports said the aircraft will be carrying other weapons, including bombs and missiles," AI said.

"The UK government should refuse permission for its sea and air ports to be used by planes or ships carrying arms and military equipment destined for Israel or Hezbollah," said Khan.

Amnesty International has also written to British Foreign Secretary Margaret Beckett urging the government to suspend its own sale or transfer of all arms and military equipment to Israel.

Beckett was quoted as saying: "We have already let the United States know that this is an issue that appears to be seriously at fault, and we will be making a formal protest if it appears that that is what has happened."

Meanwhile, the New York-based Human Rights Watch (HRW) has accused the Israelis of using artillery-fired cluster munitions in populated areas of Lebanon.

"Cluster munitions are unacceptably inaccurate and unreliable weapons when used around civilians," Kenneth Roth, executive director of HRW warned. "They should never be used in populated areas."

Armed mostly with state-of-the-art U.S.-supplied fighter planes and combat helicopters, the Israeli military is capable of matching a combination of all or most of the armies in Middle Eastern countries, including Iran, Syria, Egypt, Jordan and Saudi Arabia.

The annual survey of U.S. arms sales, conducted by the U.S. Congressional Research Service (CRS), shows a total of 8.4 billion dollars of arms deliveries to Israel in the 1997-2004 period, with fully 7.1 billion dollars or 84.5 percent coming from a single source: the United States.

A major factor in this trend was the rise in U.S. Foreign Military Financing -- outright U.S. grants to Israel -- which now totals about 2.3 billion dollars a year paid for by U.S. tax payers.

Meanwhile, AI's Khan said the pattern of attacks and the extent of civilian casualties show a blatant disregard of international humanitarian law by Israel and Hezbollah.

She also said that "direct targeting of civilians and civilian infrastructure and launching indiscriminate and disproportionate attacks amount to war crimes."

Francis A. Boyle, professor of international law at the University Of Illinois College Of Law, says that the 192-member U.N. General Assembly must immediately establish an International Criminal Tribunal for Israel (ICTI) as a "subsidiary organ" under U.N.. Charter Article 22.

The ICTI would be organized along the lines of the International Criminal Tribunal for Yugoslavia (ICTY), which was established by the Security Council in 1993.

"The purpose of the ICTI would be to investigate and prosecute Israeli war crimes, crimes against humanity and genocide against the peoples of Lebanon and Palestine -- just as the ICTY did for the victims of international crimes committed by Serbia and the Milosevic regime throughout the Balkans," Boyle told IPS.

Furthermore, the establishment of ICTI by the General Assembly would serve as a deterrent effect upon Israeli leaders, including the prime minister, defence minister, the chief of staff and Israel's other top generals that they will be prosecuted for their further infliction of international crimes upon the Lebanese and the Palestinians, said Boyle, author of 'Biowarfare and Terrorism' (Clarity Press: 2005) and 'Destroying World Order' (Clarity Press: 2004).

Without such a deterrent, he said, Israel might be emboldened to attack Syria with the full support of the U.S. right-wing neo-conservatives, who have always viewed Syria as ''low-hanging fruit'' ready to be taken out by means of their joint aggression.

The Israeli press has reported that the Bush administration is encouraging Israel to attack Syria. If Israel attacks Syria as it did when it invaded Lebanon in 1982, Iran has vowed to come to Syria's defense.

is scenario could readily degenerate into World War III," warned Boyle. "For the U.N. General Assembly to establish ICTI could stop the further development of this momentum towards a regional if not global catastrophe."

Congress has written its own accounting rules - which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel.

Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household.

A growing number of Congress members and accounting experts say it's time for Congress to start using the audited financial statement when it makes budget decisions. They say accurate accounting would force Congress to show more restraint before approving popular measures to boost spending or cut taxes.

"We're a bottom-line culture, and we've been hiding the bottom line from the American people," says Rep. Jim Cooper, D-Tenn., a former investment banker. "It's not fair to them, and it's delusional on our part."

The House of Representatives supported Cooper's proposal this year to ask the president to include the audited numbers in his budgets, but the Senate did not consider the measure.

Good accounting is crucial at a time when the government faces long-term challenges in paying benefits to tens of millions of Americans for Medicare, Social Security and government pensions, say advocates of stricter accounting rules in federal budgeting.

"Accounting matters," says Harvard University law professor Howell Jackson, who specializes in business law. "The deficit number affects how politicians act. We need a good number so politicians can have a target worth looking at."

The audited financial statement - prepared by the Treasury Department - reveals a federal government in far worse financial shape than official budget reports indicate, a USA TODAY analysis found. The government has run a deficit of $2.9 trillion since 1997, according to the audited number. The official deficit since then is just $729 billion. The difference is equal to an entire year's worth of federal spending.

Congress and the president are able to report a lower deficit mostly because they don't count the growing burden of future pensions and medical care for federal retirees and military personnel. These obligations are so large and are growing so fast that budget surpluses of the late 1990s actually were deficits when the costs are included.

The Clinton administration reported a surplus of $559 billion in its final four budget years. The audited numbers showed a deficit of $484 billion.

In addition, neither of these figures counts the financial deterioration in Social Security or Medicare. Including these retirement programs in the bottom line, as proposed by a board that oversees accounting methods used by the federal government, would show the government running annual deficits of trillions of dollars.

The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.

The government's record-keeping was in such disarray 15 years ago that both parties agreed drastic steps were needed. Congress and two presidents took a series of actions from 1990 to 1996 that:

-Created the Federal Accounting Standards Advisory Board to establish accounting rules, a role similar to what the powerful Financial Accounting Standards Board does for corporations.

-Added chief financial officers to all major government departments and agencies.

-Required annual audited financial reports of those departments and agencies.

-Ordered the Treasury Department to publish, for the first time, a comprehensive annual financial report for the federal government - an audited report like those published every year by corporations.

These laws have dramatically improved federal financial reporting. Today, 18 of 24 departments and agencies produce annual reports certified by auditors. (The others, including the Defense Department, still have record-keeping troubles so severe that auditors refuse to certify the reliability of their books, according to the government's annual report.)

The culmination of improved record-keeping is the "Financial Report of the U.S. Government," an annual report similar to a corporate annual report. (The 158-page report for 2005 is available online at fms.treas.gov/fr/index.html.)

The House Budget Committee has tried to increase the prominence of the audited financial results. When the House passed its version of a budget this year, it included Cooper's proposal asking Bush to add the audited numbers to the annual budget he submits to Congress. The request died when the House and Senate couldn't agree on a budget. Cooper has reintroduced the proposal.

The Federal Accounting Standards Advisory Board, established under the first President Bush in 1990 to set federal accounting rules, is considering adding Social Security and Medicare to the government's audited bottom line.

Adding those costs would make federal accounting similar to that used by corporations, state and local governments and large non-profit entities such as universities and charities. It would show the government recording enormous losses because the deficit would reflect the growing shortfalls in Social Security and Medicare.

The government would have reported nearly $40 trillion in losses since 1997 if the deterioration of Social Security and Medicare had been included, according to a USA TODAY analysis of the proposed accounting change. That's because generally accepted accounting principles require reporting financial burdens when they are incurred, not when they come due.

For example: If Microsoft announced today that it would add a drug benefit for its retirees, the company would be required to count the future cost of the program, in today's dollars, as a business expense. If the benefit cost $1 billion in today's dollars and retirees were expected to pay $200 million of the cost, Microsoft would be required to report a reduction in net income of $800 million.

This accounting rule is a major reason corporations have reduced and limited retirement benefits over the last 15 years.

The federal government's audited financial statement now accounts for the retirement costs of civil servants and military personnel - but not the cost of Social Security and Medicare.

The new Medicare prescription-drug benefit alone would have added $8 trillion to the government's audited deficit. That's the amount the government would need today, set aside and earning interest, to pay for the tens of trillions of dollars the benefit will cost in future years.

Standard accounting concepts say that $8 trillion should be reported as an expense. Combined with other new liabilities and operating losses, the government would have reported an $11 trillion deficit in 2004 - about the size of the nation's entire economy.

The federal government also would have had a $12.7 trillion deficit in 2000 because that was the first year that Social Security and Medicare reported broader measures of the programs' unfunded liabilities. That created a one-time expense.

The proposal to add Social Security and Medicare to the bottom line has deeply divided the federal accounting board, composed of government officials and "public" members, who are accounting experts from outside government.

The six public members support the change. "Our job is to give people a clear picture of the financial condition of the government," board Chairman David Mosso says. "Whether those numbers are good or bad and what you do about them is up to Congress and the administration."

The four government members, who represent the president, Congress and the Government Accountability Office, oppose the change. The retirement programs do "not represent a legal obligation because Congress has the authority to increase or reduce social insurance benefits at any time," wrote Clay Johnson III, then acting director of the president's Office of Management Budget, in a letter to the board in May.

Why the big difference between the official government deficit and the audited one?

The official number is based on "cash accounting," similar to the way you track what comes into your checking account and what goes out. That works fine for paying today's bills, but it's a poor way to measure a financial condition that could include credit card debt, car loans, a mortgage and an overdue electric bill.

The audited number is based on accrual accounting. This method doesn't care about your checking account. It measures income and expenses when they occur, or accrue. If you buy a velvet Elvis painting online, the cost goes on the books immediately, regardless of when the check clears or your eBay purchase arrives.

Cash accounting lets income and expenses land in different reporting periods. Accrual accounting links them. Under cash accounting, a $25,000 cash advance on a credit card to pay for a vacation makes the books look great. You are $25,000 richer! Repaying the credit card debt? No worries today. That will show up in the future.

Under accrual accounting, the $25,000 cash from your credit card is offset immediately by the $25,000 you now owe. Your bottom line hasn't changed. An accountant might even make you report a loss on the transaction because of the interest you're going to pay.

"The problem with cash accounting is that there's a tremendous opportunity for manipulation," says University of Texas accounting professor Michael Granof. "It's not just that you fool others. You end up fooling yourself, too."

Federal law requires that companies and institutions that have revenue of $1 million or more use accrual accounting. Microsoft used accrual accounting when it reported $12 billion in net income last year. The American Red Cross used accrual accounting when it reported a $445 million net gain.

Congress used cash accounting when it reported the $318 billion deficit last year.

Social Security chief actuary Stephen Goss says it would be a mistake to apply accrual accounting to Social Security and Medicare. These programs are not pensions or legally binding federal obligations, although many people view them that way, he says.

Social Security and Medicare are pay-as-you go programs and should be treated like food stamps and fighter jets, not like a Treasury bond that must be repaid in the future, he adds. "A country doesn't record a liability every time a kid is born to reflect the cost of providing that baby with a K-12 education one day," Goss says.

Tom Allen, who will become the chairman of the federal accounting board in December, says sound accounting principles require that financial statements reflect the economic value of an obligation.

"It's hard to argue that there's no economic substance to the promises made for Social Security and Medicare," he says.

Social Security and Medicare should be reflected in the bottom line because that's the most important number in any financial report, Allen says.

"The point of the number is to tell the public: Did the government's financial condition improve or deteriorate over the last year?" he says.

If you count Social Security and Medicare, the federal government's financial health got $3.5 trillion worse last year.

Rep. Mike Conaway, R-Texas, a certified public accountant, says the numbers reported under accrual accounting give an accurate picture of the government's condition. "An old photographer's adage says, 'If you want a prettier picture, bring me a prettier face,' " he says.

"This is an important trend to watch but doesn't strike us as ominous," said Marshall Prentice, DataQuick's president. "We would have to see defaults roughly double from today's level before they would begin to impact home values much."
Because the number of defaults had fallen to extreme lows in recent years, it was widely expected that they would start spiking up as home-price appreciation slowed, he said.
"We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress," Prentice said. "While there's no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation."

Slowing prices make it harder for homeowners who fall behind on mortgage payments to sell their homes and pay off the lender.

Price increases level off

Some parts of California, along with others in Florida and the northeast region, had seen some of the sharpest increases in home prices in the nation over the past few years, fueling what many observers described as a speculative bubble.

Historically low interest rates helped fuel the surge in home sales and prices, also encouraging homeowners to borrow on their home equity to finance their consumption.
But with the Federal Reserve gradually lifting short-term rates over the past two years, the housing market began to slow late last year.

California defaults had hit a low of 12,145 in the third quarter of 2004, a year during which home prices were on average rising by more than 20% annually. But so far this year, annual price gains have slipped into single digits in many of the state's key housing markets, DataQuick said.
In July, median home prices in San Diego and Sacramento counties dipped about 1% from the year earlier. As a result, second-quarter defaults rose by 99% in San Diego County and 109% in Sacramento County. Still, that represented just 1,778 default notices in San Diego and 1,352 in Sacramento. DataQuick said overall defaults remain about one-third their peak level reached in 1996 in the last housing recession in California.

"We believe the department may have deliberately withheld crucial information" that could determine if the issue involves a deliberate action, complained Reps. Tom Davis, R-Va., and Darrell Issa, R-Calif.

Davis, chairman of the House Government Reform Committee, and Issa, chairman of its investigations subcommittee, demanded in a letter to Interior Secretary Dirk Kempthorne that additional documents and e-mails be provided concerning the 1990s drilling leases.

Issa has held several hearings on the matter, which concerns the failure of the department's Minerals Management Service to include a provision in the 1998-99 leases that would have required payment of royalties on oil or gas taken if the market price reached a certain point.

Because the provision was left out of leases issued those two years, the leaseholders have not had to pay royalties and won't for years to come, although oil and gas prices have soared well above the royalty trigger.

The Congressional Budget Office estimates that as a result the government has already lost $2 billion in royalties and stands to lose another $8 billion over the life of the leases, said Issa.

Interior officials have told Issa's committee at two separate hearings that they believe the royalty threshold provision - which had been in earlier leases and was again in leases issued in 2000 and later - apparently was left out by mistake, but that they have not been able to pinpoint the reason.

The Interior Department's inspector general also has been investigating the circumstances surrounding the leases.

In their letter to Kempthorne, released Thursday, the two congressmen said two Interior Department officials had, in interviews with subcommittee staffers, "made reference to people who may have ordered the elimination of price thresholds in the (1998-99) deepwater leases."

"That kind of information is critical to this investigation, especially since Interior officials have testified to the contrary," Davis and Issa wrote.

The two Interior officials, identified as Jane Lyder, DOI legislative counsel, and Lyn Herdt, MMS congressional liaison, have "given us the impression" the department has "withheld critical information" from the subcommittee that might get to the bottom of the mystery, the congressmen continued.

Neither Lyder nor Herdt was available when attempts were made to reach them at their offices.

Interior Department spokeswoman Tina Kreisher said Kempthorne had talked to Davis and "assured him we will fully cooperate" with the congressional investigation. "We have followed all our normal procedures in responding to document requests," she said in a statement. "To the best of our knowledge, we have been fully responsive and have supplied every document previously requested."

Of particular interest to the House subcommittee are thousands of e-mails concerning deepwater leases, said the congressmen. The subcommittee had received only 12 such e-mails from the department, while the IG's office has indicated it was reviewing 5,000 e-mails covering the same period, they complained.

"We know there are relevant e-mails that we have not had access to," said Larry Brady, a spokesman for Issa's subcommittee.