Tag Archives: Deficits

The US Just Borrowed $488 Billion In One Quarter, The Most Since The Financial Crisis, by Tyler Durden

Posted on May 1, 2018 | Leave a comment

This borrowing comes as the economy is supposedly booming. Where does it go during a recession? From Tyler Durden at zerohedge.com:

For months, analysts have been warning that the US is set to borrow an unprecedented – for a non-recessionary period – amount of money…

and on Monday afternoon this was confirmed, when the US Treasury announced that in the quarter ended March 31 (the fiscal year’s second), the US borrowed $47BN more than its had anticipated three months ago, or $488BN to be precise.

This was the single biggest quarterly amount of debt sold by the US Treasury since the record $569BN in debt borrowed in Q4 2008 when the financial system nearly collapsed, and Treasury had no choice but to raise a gargantuan amount of money during the biggest financial crisis in modern US history.

What makes the just passed quarter different, however, is that there was no crisis, not even a recession. In fact, in the first quarter US GDP rose by 2.3% according to the BEA amid what, until recently, the “experts” said was a global coordinated recovery.

In retrospect, it appears the “recovery” was only around long enough for the US and/or China to raise near record amounts of debt.

As a result of the near-record borrowing spree, the US ended the quarter with $290BN in cash, more than the $210BN budgeted.

What is scary is how fast the US is raking up the debt: as a reminder, just a few weeks ago we reported that in the first six months of the fiscal year, the US budget deficit rose to $600 billion as spending increased at three times the pace of revenue growth in the October-to-March period. At that run-rate, the US deficit will soar to $1.2 trillion for fiscal 2018, far above the $804BN projected budget gap and resulting in an even greater amount of debt borrowed.

Commenting on the debt splurge, the Treasury said tax changes are “poised to underpin near-term consumption and investment” and “the stage is set for a pick-up in growth over the near term.”

They better, because if all we have to show for nearly a half a trillion in debt in one quarter is 2.3% GDP, then the US is in very serious trouble.

To continue reading: The US Just Borrowed $488 Billion In One Quarter, The Most Since The Financial Crisis

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Deutsche: Is The US Headed For An Imminent Debt Crisis? Here Are The Signs, by Tyler Durden

Posted on April 29, 2018 | Leave a comment

The US is certainly headed for a debt crisis, whether it’s imminent or not depends on how you define imminent. From Tyler Durden at zerohedge.com:

The thesis is simple and familiar: the United States is running a fiscal deficit and a current account deficit (i.e. “twin deficits”) and relies on domestic and foreign investors to buy US Treasuries.

The  bigger the fiscal deficit is the more Treasuries investors – including the Federal Reserve – need to buy. At the same time, the more Treasuries that have to be sold, the highest the interest rate all else equal… until something snaps (or unless an stock market crisis forces the Fed and investors to monetize/park cash in Treasurys).

This was, in a nutshell the grim message from the IMF’s latest Fiscal Monitor Report, which warned that the US would be the only country with growing debt levels over the next 5 years.

What the IMF did not elaborate on, however, is that in many countries, such twin deficits have resulted in a debt crisis. So, picking up where the IMF left off, Deutsche Bank conducted an analysis which found that “the deteriorating fiscal and external situation for the United States have increased the probability of a US debt
crisis by 7 percentage points, from a historical average below 9% to a level around 16%.” More details:

As shown in Figures 10 and 11 below, the model-implied odds of a crisis are set to tick higher over the next several years as government debt levels increase and the current account deficit grows. Indeed, the probability tends to rise to an abnormally high level outside of recessions. The pre-crisis average was around 9%; the next four years will average a bit more than 15%. This is mostly due to wider fiscal deficits, which we expect to widen to around 5.0% of GDP in each year through 2022. Fiscal expansion will boost growth this year, partially reducing the odds a crisis in the very near-term, but this effect will fade over the forecast horizon as growth slows down to its long-term trend and fiscal deficits remain large.

To continue reading: Deutsche: Is The US Headed For An Imminent Debt Crisis? Here Are The Signs

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“Worse Than You Think” – 8 Reality-Checks From Last Week’s CBO Report, by David Nevins

Posted on April 22, 2018 | Leave a comment

CBO reports on the government’s finances make for grim reading, but probably not grim enough. From David Nevins at ffwiley.com:

For what they’re worth and for anyone who doesn’t mind digging through the weeds, here are my comments on last week’s budget outlook from the Congressional Budget Office, which I previewed here.

  1. In the baseline scenario that’s widely reported in the media (I’ll abbreviate it BS for this post), the CBO shows federal debt held by the public soaring from 76% of GDP at fiscal year-end in 2017 to 96% of GDP at the end of the ten-year forecast horizon in 2028.
  2. The CBO also restored its alternative scenario (AS), which adjusts for certain constraints on what it’s legally allowed to include in the BS, making it more realistic than the BS. Unfortunately, the AS didn’t appear in annual reports between 2014 and 2017—in those years, the CBO highlighted areas where its BS projections were likely to be wrong but without producing an alternative. Even though it gets only a fraction of the attention given the BS, it’s good to see the AS back. It shows debt held by the public rising to 105% of GDP by the end of 2028, compared to the baseline’s 96% of GDP.
  3. But the AS is also optimistic, partly because it uses the same rosy economic assumptions as the BS and partly because it includes less “emergency” spending than the BS.
  4. As for the economic assumptions, the CBO’s unemployment rate projections are lower than they were last year in every projection year. They show an average unemployment rate for the next ten years of 4.4%, which is almost a third lower than the 6.2% historical average over the past forty years (see the chart below) and at least 0.4% lower than in any other ten-year projection the CBO has ever produced.
  5. For perspective, consider that the Bureau of Labor Statistics shows only one historical ten-year period during which the average unemployment rate was as low as the CBO projects today. That one period was from 1948 to 1957, when the unemployment rate averaged 4.4% as in the CBO’s current projection, but it’s hard to imagine the average would have been that low had the Korean War not pushed unemployment firmly below 4% for 35 consecutive months.

To continue reading:  “Worse Than You Think” – 8 Reality-Checks From Last Week’s CBO Report

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The Other Raiding Party, by David Stockman

Posted on April 11, 2018 | 1 comment

Bush doubled the national debt, Obama doubled the national debt, and there’s a better than average chance that Trump will do the same. From David Stockman at davidstockmanscontracorner.com:

While the FBI was raiding the offices of Trump’s lawyer yesterday afternoon, the CBO published a blockbuster report evidencing the Donald’s own raiding party. To wit, in roughly 90 days of fiscal madness between December and February, Trump and his GOP allies piled $459 billion onto next year’s (FY 2019) deficit.

That eruption of red ink consisted of $285 billion for the tax bill and $174 billion of spending add-ons for defense ($56 billion), domestic programs ($105 billion) and additional debt service ($13 billion). For FY 2019 alone the added debt amounted to 2.3%of GDP, and turned an awful fiscal situation into an outright disaster.

Indeed, the real “watershed moment” yesterday was not that Mueller went after the keeper of Trump’s legal skeletons, but that CBO let the real monsters out of the fiscal closet, translating Trump-O-Nomics into the scariest budget numbers ever seen.

Namely, a public debt that reaches $33.85 trillion (130% of GDP) by 2028 and that’s not our projection; it’s right there on p.87 of the CBO’s official report.

Moreover, that’s the good news part of the report. But to believe that the public debt is only heading for 130% of GDP during the next 10 years, you have to believe in Rosy Scenario economics and be OK with the crooked book-keeping forced on CBO by our estimable legislators.

As we show below, grab some sober economics and honest fiscal book-keeping—and the public debt number 10-years out is actually $40 trillion and 150% of GDP. And there’s no conceivable way to dig out from under it because the tsunami of baby-boom retirements and the associated Welfare State fiscal costs are insuperable.

The CBO report lets some skeletons out of the closet on that point, too. Thus, combined social security and medicare costs will rise from $1.8 trillion in FY 2019 to $3.3 trillion by FY 2028 owing to the rolls rising from 60 million to 80 millionbeneficiaries, as well as cost of living adjustments and medical care inflation.

Needless to say, the remaining accounting “solvency” of the OASHDI (old age, survivors, hospital and disability) trust funds will quickly evaporate under this spending wave. In fact, the trust funds’ cash deficit in the coming year will total $108 billion, rise to $504 billion by 2028 and then head into the trillions shortly thereafter. And that’s per year!

In short, what’s coming is a monumental Welfare State crisis owing to the fact that the vaunted trust funds are rapidly going bust. Just in the FY 2019-2028 period they will be collecting nearly $2.8 trillion less in income from the payroll taxes than the benefit costs which the retired population will be entitled to under law.

To continue reading: The Other Raiding Party

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Q1 2018 Was A Disaster For America, by Chris Hamilton

Posted on April 2, 2018 | Leave a comment

In the first quarter, federal debt grew $621 billion. The US economy grew, if you can call it that, $110 billion. So ever dollar’s worth of growth cost over five dollars. That sounds like we’re heading backwards. From Chris Hamiton at economica.com:

In the first quarter of 2018, the financial and investing industry went into overdrive detailing the upside of the 2018 tax cuts and the positive impacts of a “business friendly” executive and congressional branch on business in America.  The stock market hit record highs and the Federal Reserve proclaimed such good times as to raise their economic outlook and increase the likelihood for interest rate hikes.

From January 1, 2018 through March 28, 2018 (Q1), real GDP likely grew $110 billion (a 2.5% rise on an annualized basis).  However, the fly in the ointment…according to the Treasury, from Jan 1, 2018 through March 28, 2018 (Q1), federal debt rose by an astounding $621 billion dollars (a 13.1% increase on an annualized basis).  The chart below shows the quarterly change in federal debt versus the quarterly change in real GDP since 2000.  Q1 2018 was the second largest quarterly growth in federal debt, only surpassed by the massive free spending of Q4, 2008.

Or, if we just subtract the quarterly growth in federal debt from the growth in real GDP…chart below. 

Unfortunately, Q1 2018 is one of the worst quarters on record with the growth in federal debt doing laps around the “growth” in Gross Domestic Product (which of course counts all the federal debt fueled activity?!?).  Incurring over $621 billion in new debt (to be serviced ad infinitum) to produce just over a $100 billion in new economic activity is something only government could achieve.

However, it gets downright miserable if you add in the massive $500 to $750 billion quarterly growth of unfunded liabilities alongside the growth in federal debt.  Together, the UL’s and federal debt are rising $3 to $4 trillion annually while GDP is rising around a half trillion.  The tax cuts and fast rising costs of social programs will continue to see deficits rise far faster than economic activity or resultant tax revenue.

How this can be reason for celebration…well, I guess it’s all a matter of perspective.  The US can never grow it’s way out of this hole…but the Fed and federal government is the best leadership money can buy.  In real time they are choosing (and aligning themselves with) the minority who will end up winners and leaving everybody else to endure the losses as this all shakes out.

To continue reading: Q1 2018 Was A Disaster For America

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Treasury Admits It Lost $1.2 TRILLION in 2017, by Mark Nestmann

Posted on March 29, 2018 | Leave a comment

The US is broke, and the Treasury’s own report admits it. From Mark Nestmann at nestmann.com:

In 1971, President Richard Nixon told an ABC News reporter that he was “now a Keynesian in economics.”

Nixon’s statement was an acknowledgment that he agreed with the ideas of John Maynard Keynes. Keynes was an economist whose theories once underpinned the economies of every major country.

Nixon’s endorsement of Keynesian economics was shocking. To understand its impact at the time, consider how the world would react today if the leader of ISIS converted to Christianity. Or if the National Rifle Association endorsed a ban on semi-automatic weapons.

Nixon’s statement was astonishing because one of the fundamental precepts of Keynesian economics is that governments must intervene in the economy to ensure “optimal outcomes.” To economic conservatives, this was dangerously close to socialism or even communism.

Keynes believed that business cycles – periods of expansion followed by recessions – are the inevitable consequence of capitalism. Free-market economists believe governments should not intervene in the business cycle support economies in recession. Keynes thought intervention was a fundamental duty of government.

During the Great Depression of the 1930s, Keynes advocated for governments to reduce taxes and increase public spending to spur employment. Keynes acknowledged that this policy might require deficit spending. But he believed budget surpluses when prosperity returned would make up for the deficits.

Once Nixon embraced Keynesianism, resistance by economic conservatives – and the Republican Party – faltered. The last Republican president who didn’t endorse Keynesian economics was Dwight Eisenhower, who left office in 1961. Ronald Reagan, George Bush Sr., George Bush Jr., and now Donald Trump have all embraced cutting taxes to spur the economy.

That brings us to 2018. February 15, 2018, to be exact. That’s the day that Treasury Secretary Steven T. Mnuchin signed off on a report with the mind-numbing title Fiscal Year 2017 Financial Report of the United States Government.

To continue reading: Treasury Admits It Lost $1.2 TRILLION in 2017

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If This Is “Representation” Give Me Rebellion, by Justin O. Smith

Posted on March 24, 2018 | 2 comments

The $1.3 Trillion spending bill President Trump just signed is both a financial and political travesty. From Justin O. Smith at theburningplatform.com:

As I listen to President Trump on his action of signing the current Omnibus bill, I am left with no other conclusion than he is really not as strong a leader as many seem to believe him to be. He signed this terrible $1.3 trillion bill for all the wrong reasons and lamented its exclusion of terrible other items, like DACA, but nowhere did he castigate these do-nothing “leaders” for adding a bad gun control act called “NICS”; this Omnibus bill is all smoke and mirrors and the 33 miles of added funding for border fencing is just that – a fence [barely], not a wall.

This bill continues to fund Planned Parenthood too. — Oh — And Sanctuary Cities Too. Really? What happened to all Trump’s talk about “defunding” sanctuary cities?

And how many more times are we going to provide border wall funding only to see a lesser plan offered and implemented for less money and the appropriated money simply disappear? Into someone’s pockets? Especially now that we see this bill provides funding to secure the borders of Afghanistan and Iraq.

Trump should have refused to sign this bill and let the chips fall where they may, but he’s terrible when it comes to policy on funding government and many other items. If Trump had not signed the bill, any government shutdown would not have stopped the military from functioning. Since the military is considered an “essential” function, i.e. halting its operations could result in fatalities or impede national security, it will continue to operate regardless of whether or not the government shuts down; military spending would have been addressed soon enough, once Congress returned with a cleaner bill.

Whose side is the GOP really on and when are they going to start keeping their promises? This is not REPRESENTATION. THIS Is A PERPETUAL CON GAME BEING RUN ON THE U.S. TAXPAYER AND THE AMERICAN PEOPLE.

To continue reading: If This Is “Representation” Give Me Rebellion

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$21 Trillion And Counting: Why Deficits Didn’t Matter During The Age Of Monetization, 1987-2017 (Part 2), by David Stockman

Posted on March 23, 2018 | 2 comments

The age of deficits not mattering to either politicians or financial markets is passing. From David Stockman at davidstockmanscontracorner.com:

For the past 30 years fiscal deficits have been a big financial nothingburger because the Fed and other central banks gutted their sting. So doing, they drastically and dangerously falsified the market for government finance by weaning politicians of the one element that kept modern Big Government fiscally contained.

We are referring to the historical fear among politicians that fiscal deficits cause “crowding out” of private investment and rising interest rates. Indeed, that  proposition was universally understood during your editor’s sojourn in the Imperial City between 1970 and 1985 as a staffer, Congressman and budget director.

As it has turned out, however, there was implicitly a crucial qualifier. To wit, it was naturally assumed that fiscal deficits would be financed in honest capital markets, and that yields in the bond pits were free market prices which cleared the balance between the supply of private long-term savings and the demand for term debt.

The very notion that it could be otherwise—-that the central banking branch of governments could swoop into capital markets to scoop up and sequester in their trillions the debt emissions of the fiscal branches— was scarcely imaginable among anyone reasonably educated and minimally informed.

After all, had Lyndon Johnson, Tricky Dick, Jimmy Carter or even Ronald Reagan suggested that the Federal Reserve buy government debt at rates which exceeded annual issuance by the US Treasury, as was the case during the peak years of QE, they would have been severely attacked—if not subjected to impeachment—-for advocating rank financial fraud.

Nor is that mere conjecture. For instance, after his “guns and butter” deficits had breached an unheard of 3% of GDP (outside of world war), LBJ essentially concluded he had no choice except to commit political hara-kiri by forcing a 10% surtax through the Congress in the 1968 election year.

Likewise, upon inheriting the Oval Office in August 1974, Jerry Ford  famously attempted to curtail excessive fiscal stimulus with a “WIN” tax, and Jimmy Carter never let his deficits get above 2.5% of  GDP—-even though he had a big spending domestic agenda.

But the most dispositive case of all was that of Ronald Reagan. Notwithstanding his reputation as the scourge of taxes, the Gipper signed three consecutive tax increase bills in 1982, 1983 and 1984 after the deficit exploded to 6% of GDP owing to the original Reagan tax cut and huge defense build-up.

To continue reading: $21 Trillion And Counting: Why Deficits Didn’t Matter During The Age Of Monetization, 1987-2017 (Part 2)

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US Gross National Debt Spikes $1 Trillion in Less Than 6 Months, by Wolf Richter

Posted on February 24, 2018 | 1 comment

A trillion here, a trillion there; pretty soon you’re talking a real national debt, especially when it takes less than six months to add another trillion. From Wolf Richter at wolfstreet.com:

And these are the good times.

As of the latest reporting by the Treasury Department, the US gross national debt rose by $41.5 billion on Thursday, February 22, to a grand total of $20.8 trillion.

Here’s the thing: On September 7, 2017, five-and-a-half months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.8 trillion.

At that time, I was holding my breath waiting for the gross national debt to take a huge leap in a single day – as it always does after the debt ceiling gets lifted or suspended – and jump to the next ignominious level. It sure did the next day, when it jumped $318 billion.

And it continued. Over a period of 8 weeks, the gross national debt jumped by $640 billion. Four weeks after that, it had ballooned by $723 billion, at which point Fed Chair Yellen – whose cheap-money policies had enabled Congress to do this for years – said that she was “very worried about the sustainability of the US debt trajectory.”

Then Congress served up another debt ceiling – a regular charade lawmakers undertake to extort deals from each other, beat the White House into submission, and keep the rest of the world their on their toes. It goes like this: First they pass the spending bills, directing the Administration to spend specific amounts of money on a gazillion specific things spread around specific districts. Then they block the means to pay the credit card bill.

That debt ceiling was suspended on February 8, at which point the gross national debt began to surge again, adding $1 trillion ($960.4 billion rounded to the nearest 100 million), a 5% jump in the gross national debt in just 5.5 months:

In the chart, note the somewhat technical jargon (marked in green) of what will happen going forward. The past week saw record issuance of Treasury debt, and that surge of Treasury debt issuance will continue. The Treasury department now expects that the debt will increase by $617 billion by mid-year.

To continue reading: US Gross National Debt Spikes $1 Trillion in Less Than 6 Months

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Who Will Buy Trillions Of US Treasuries??? by Chris Hamilton

Posted on February 22, 2018 | Leave a comment

The coming onslaught of US government debt will overwhelm the market. From Chris Hamilton at economica.com:

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion.  This is an increase of $266 billion essentially since the most recent debt ceiling passage.  Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem.  In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt.  Without the federal deficit spending, the economy would be shrinking.

The chart below shows the annual change in GDP minus the annual federal deficit incurred.  Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced.  The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits.  It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

So, for America to appear as if it is moving forward, it has to go backward into greater debt?!?  If you weren’t troubled so far, here is where the stuff starts to hit the fan.

With the change to the Unified budget, effective as of 1969, the Social Security surplus was “unified” into the federal budget.  The government gave themselves a ready buyer for US debt while simultaneously allowing the SS surplus to be spent in “the present”.  Congressionally mandated to buy US debt, from 1970 to 2008, the Intra-Governmental Holdings (over half from the Social Security surplus) purchased over 45% of all federal debt issued.  This meant “only” 55% of US debt was auctioned into the market, or “marketable debt”.

To continue reading: Who Will Buy Trillions Of US Treasuries???

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