Tag Archives: Deficits

US Treasury Posts Gigantic $1.16 Trillion Shortfall in Fiscal 2017, Hilariously Points out “Where We Are Headed”, by Wolf Richter

Posted on February 19, 2018 | Leave a comment

If the government had to account for its liabilities like most corporations do, it would have shown a $1.157 trillion deficit, not the $665.75 billion deficit it reported. By either measure, the deficit will be going up in the next few years. From Wolf Richter at wolfstreet.com:

Just add tax cuts and ballooning expenditures. The media chose to silence the report to death.  

“If a tree fell in a forest and nobody heard it, did it really make a sound?” asks our favorite fiscal gadfly and Director of Research at Truth in Accounting, Bill Bergman, referring to the media coverage that the Treasury Department’s “Fiscal Year 2017 Financial Report of the U.S. Government” has received, which was, at the time he wrote it 24 hours after the February 15 release of the report: “Nothing. Zip. Scratch.”

Friday’s issue of the Wall Street Journal did not say a word about our public purse, or what happened to it last year. In the “What’s News” section on the front page, we learn about compelling things like “Billionaire investor Thiel is relocating to Los Angeles,” “Nestle’s sales growth last year was the slowest in decades,” and “U.S. motor vehicle deaths remained near decade-high levels in 2017.”

But we don’t learn anything about the financial condition of the federal government, from neither the Wall Street Journal nor the New York Times.

The largest financial institution in world history issued its annual report yesterday, and nobody cares.

That’s probably a good thing, given the kind of fiasco it is:

Here’s a summary of the salient data points of the FY 2017 Financial Report of the U.S. Government (full PDF).

  • “Net cost” before taxes and other revenues rose by $129 billion year-over-year, or 2.9%, to $4.5 trillion.
  • Tax and other revenues grew by $29.3 billion year-over-year, or 0.9%, to $3.4 trillion.
  • The difference, the Net Operating Cost or the “bottom line,” as the report calls it, soared 10% year-over-year to $1.157 trillion.
  • The Budget Deficit, a different measure, grew by $78.3 billion, or 13.3%, to $665.7 billion.

The Net Operating Cost ($1.157 trillion) is defined as revenues minus costs. The Budget Deficit ($665.7 billion) is defined as receipts minus outlays (cash spent). The difference of $491 billion between the two is, according to the report, “primarily due to accrued costs (incurred but not necessarily paid) related to increases in estimated federal employee and veteran benefits liabilities and certain other liabilities that are included in net operating cost, but not the budget deficit.”

So the Net Operating Cost is a more realistic measure of the actual gap between the government’s revenues and expenditures.

To continue reading: US Treasury Posts Gigantic $1.16 Trillion Shortfall in Fiscal 2017, Hilariously Points out “Where We Are Headed”

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How Did America Go Bankrupt? Slowly, At First, Then All At Once!!! by Chris Hamilton

Posted on February 19, 2018 | Leave a comment

Here is the story, with charts, detailing America’s impending bankrupty. From Chris Hamilton at economica.com, via zerohedge.com:

The US federal debt has again been on the move, as of mid-week up to a fresh record of $20.7 trillion.  But, really, without some sort of reference point, what does that mean?

Typically, the metrics of total debt or federal debt divided by GDP (Gross Domestic Product or the total value of goods produced and services provided in the US annually) are used (chart below).  Still, that’s a bit ethereal to most folks.

So, I thought I’d make this simpler.  The chart below shows federal debt (red line) versus total full time employees (blue line) since 1970.  Clearly, debt has surged since 2000 and particularly since 2008 versus decelerating net full time jobs growth.  The number of full time employees is economically critical as, generally speaking, only these jobs offer the means to be a home buyer or build savings and wealth in a consumer driven economy.  Part time employment generally offers only subsistence level earnings.

But if we look at the change over those periods highlighted in the chart above, we get a clear picture (chart below).  Full time jobs are being added at a rapidly declining rate while federal debt is surging in the absence of the growth of full time employees.

And if we look at the federal debt added per full time job added (chart below)…broken arrow…broken arrow!!!  That is $1.92 million dollars in new federal debt per net new full time employee since 2008.  Compare that to the $30 thousand per net new full time employee from ’70 to ’80…or $140 thousand from ’80 to ’90…and nearly quadruples the $460 thousand per from ’00 to ’08.  Despite a far larger total population and after ten years of “recovery” since ’08, this is likely as good as it gets.  We are likely at or very near the top of this economic cycle.  This pattern is likely to carry forward over the next decade and economic cycle…likely with disastrous results.

To continue reading: How Did America Go Bankrupt? Slowly, At First, Then All At Once!!!

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There Will Be No Economic Boom, by Lance Roberts

Posted on February 15, 2018 | Leave a comment

Debt and debt service destroy savings and retard capital formation. From Lance Roberts at realinvestmentadvice.com:

Last week, Congress passed a 2-year “continuing resolution, or C.R.,”  to keep the Government funded through the 2018 elections. While “fiscal conservatism” was just placed on the sacrificial alter to satisfy the “Re-election” Gods,” the bigger issue is the impact to the economy and, ultimately, the financial markets.

The passage of the $400 billion C.R. has an impact that few people understand. When a C.R. is passed it keeps Government spending at the same previous baseline PLUS an 8% increase. The recent C.R. just added $200 billion per year to that baseline. This means over the next decade, the C.R. will add $2 Trillion in spending to the Federal budget. Then add to that any other spending approved such as the proposed $200 billion for an infrastructure spending bill, money for DACA/Immigration reform, or a whole host of other social welfare programs that will require additional funding.

But that is only half the problem. The recent passage of tax reform will trim roughly $2 Trillion from revenues over the next decade as well.

This is easy math.

Cut $2 trillion in revenue, add $2 trillion in spending, and you create a $4 trillion dollar gap in the budget. Of course, that is $4 Trillion in addition to the current run rate in spending which continues the current acceleration of the “debt problem.”

But it gets worse.

As Oxford Economics reported via Zerohedge:

“The tax cuts passed late last year, combined with the spending bill Congress passed last week, will push deficits sharply higher. Furthermore, Trump’s own budget anticipates that US debt will hit $30 trillion by 2028: an increase of $10 trillion.”

Oxford is right. In order to “pay for” all of the proposed spending, at a time when the government will receive less revenue in the form of tax collections, the difference will be funded through debt issuance.

Simon Black recently penned an interesting note on this:

“Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years. And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year. Then nearly $1.1 trillion next fiscal year. And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.”

You can project the run rate quite easily, and it isn’t pretty.

Of course, “fiscal responsibility” left Washington a long time ago, so, what’s another $10 Trillion at this point? 

 

To continue reading: There Will Be No Economic Boom

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The % Puzzle Coming Together, by Sven Heinrich

Posted on February 15, 2018 | Leave a comment

Debt service is taking a huge toll on the US economy, which will grow larger as the US goes ever-deeper into debt. From Sven Heinrich at northmantrader.com:

The macro premise remains simple and I’ve written about this a lot: The US is drowning in debt and as long as rates are low it’s all fun and giggles, but there is a point where it cramps on growth and the simple question is when and where. In recent weeks we have had a nasty correction coinciding with technical overbought readings and both bonds and stocks testing 30 year old trend lines.

In the meantime we continue to get data that keeps sending the same message: It’s a debt bonanza that keeps expanding and is unsustainable. Janet Yellen a few months ago said the debt to GDP ratio keeps her awake at night. Yesterday the Director of National Intelligence came out and described the national debt on an unsustainable path and a national security threat. This is literally where we are as a nation.

What’s Congress’s and the White House’s response? Spend more and blow up the deficit into the trillion+ range heading toward 2-3 trillion.

What is there to say but stand in awe at the utter hubris that is being wrought.

Last night the Fed came out with the latest household debt figures and it’s equally as damning, record debt and ever more required to keep consumer spending afloat:

The non-mortgage piece is particularly disturbing:

ch

✔@NorthmanTrader

A few nuggets in the Fed’s household debt data.
Total non mortgage debt was $2.7 trillion at the peak in 2008.
Now it’s over $3.8 trillion, a 41% increase.
The big drivers: Auto loans and student loans.
Also: Credit card balances back at their 2008 peak.

As I added on twitter last night: “Non-housing balances, which have been increasing steadily for nearly six years overall, saw a $58 billion increase in the fourth quarter. Auto loans grew by $8 billion and credit card balances increased by $26 billion, while student loans saw a $21 billion increase”. “As of December 31, 4.7 percent of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”). “The flow into 90+ days delinquency for credit card balances has been increasing notably from the last year and the flow into 90+ days delinquency for auto loan balances has been slowly increasing since 2012”.

So they want to keep raising rates. Fine go ahead. See what happens.

To continue reading: The % Puzzle Coming Together

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A Million Dollars a Minute, by Andrew P. Napolitano

Posted on February 15, 2018 | 1 comment

On present course, at the end of the President Trump’s present terms, 40 percent of tax revenues will be needed just to pay interest on the debt. From Andrew P. Napolitano at lewrockwell.com:

Imagine you open the faucet of your kitchen sink expecting water and instead out comes cash. Now imagine that it comes out at the rate of $1 million a minute. You call your plumber, who thinks you’re crazy. To get you off the phone, he opines that it is your sink and therefore must be your money. So you spend it wildly. Then you realize that the money wasn’t yours and you owe it back.

Now imagine that this happens every minute of every day for the next three years. At the end of the three years, you owe back more than $6 trillion. So you borrow $6 trillion to pay back the $6 trillion you owe.

Is this unending spigot of cash reality or fantasy?

I am not speaking of Amazon or Google or Exxon Mobil or Apple. They deliver products that appeal to consumers and investors. They deal in copious amounts of money because they sell what hundreds of millions of people want to purchase and they do it so efficiently that hundreds of thousands want to invest in them. If they fail to persuade consumers to purchase their products and investors to purchase their financial instruments, they will go out of business.

My analogy about all that cash in your kitchen sink that just keeps coming is not about voluntary commercial transactions, which you are free to accept or reject. It is about the government’s spending what it doesn’t have, the consequences of which you are not free to reject.

Government produces no products that consumers are willing to pay for voluntarily, and it doesn’t sell shares of stock in its assets. It doesn’t generate wealth; it seizes it. And when it can no longer politically get away with seizing, it borrows. It borrows a great deal of money — money that it rolls over, by borrowing trillions to pay back trillions to prior lenders, and thus its debt never goes away.

To continue reading: A Million Dollars a Minute

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Budget Woes Sign of a Dysfunctional Empire, by Jonathan Marshall

Posted on February 13, 2018 | 2 comments

Say what you want about the US’s global empire, there’s no arguing one fact: it’s damn expensive. From Jonathan Marshall at consortiumnews.com:

Exclusive: The bloated military budget is justified on the assumption that the United States can and should police the entire world, but this approach is fundamentally unsustainable, warns Jonathan Marshall.

President Donald Trump’s latest $4.4 trillion budget proposal calls for boosting military spending by nearly $200 billion over the next two years, and would balloon the national debt by more than $7 trillion over the next decade. Pundits proclaim it “dead on arrival.”

The Pentagon, headquarters of the U.S. Defense Department, as viewed with the Potomac River and Washington, D.C., in the background. (Defense Department photo)

But the likely alternative, based on the recent congressional budget accord, will be an equally irresponsible combination of sky-high military spending and even more borrowing – signs of a dysfunctional empire unable to manage its decline intelligently.

The U.S. national debt now exceeds $20 trillion, or $170,000 per taxpayer. When the number was smaller two years ago, under President Obama, Senate Majority Leader Mitch McConnell called it “dangerous and unacceptable.” Yet, following last December’s massive corporate and personal tax cut, and the subsequent agreement on new spending targets, Congress now envisions adding $15 trillion to the federal government’s debt over the next decade.

No serious analyst predicts any immediate disaster, but fast-rising levels of public debt, combined with extremely low levels of private savings, could set the United States up for another financial crisis. If interest rates climb, high levels of debt can rapidly drive up federal spending on interest. If another recession strikes, slashing federal revenues, the burden of debt can also soar.

While many domestic programs are slated to grow, a major contributor to the U.S. debt burden will be soaring military spending. The recent budget accord calls for feeding the military about $80 billion more this year, and an additional $16 billion more the next. The increase alone exceeds Russia’s entire military budget ($69 billion in 2016, the most recent year for which comparative data are available).

Even without these increases, the United States already spends more than twice as much on its military as China and Russia combined. Equally significant, the next 15 largest military spenders are all friendly powers or formal allies of the United States. That’s why the only serious threats to U.S. forces come when they insert themselves into local wars thousands of miles away.

To continue reading: Budget Woes Sign of a Dysfunctional Empire

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This may be the beginning of the Great Financial Reckoning, by Simon Black

Posted on February 13, 2018 | Leave a comment

Concerning the deficit and the US national debt, reality is probably not going to live up to the projections, and the projections are pretty frightening. From Simon Black at sovereignman.com:

Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years.

And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year.

Then nearly $1.1 trillion next fiscal year.

And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.

Remember, this isn’t some wild conspiracy theory. These are official government projections published by the United States Department of Treasury.

This story alone is monumental– not only does the US owe, by far, the greatest amount of debt ever accumulated by a single nation in human history, but $25 trillion is larger than the debts of every other nation in the world combined.

But there are other themes at work here that are even more important.

For example– how is it remotely possible that the federal government can burn through $1 trillion?

Everything is supposedly totally awesome in the United States. The economy is strong, unemployment is low, tax revenue is at record levels.

It’s not like they had to fight a major two front war, save the financial system from an epic crisis, or battle a severe economic depression.

It’s just been business as usual. Nothing really out of the ordinary.

And yet they’re still losing trillions of dollars.

This is pretty scary when you think about it. What’s going to happen to the US federal deficit when there actually IS a financial crisis or major recession?

And none of those possibilities are factored into their projections.

The largest problem of all, though, is that the federal government is going to have a much more difficult time borrowing the money.

To continue reading: This may be the beginning of the Great Financial Reckoning

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Rising Debt + Rising Rates, by the Northman Trader

Posted on February 11, 2018 | 1 comment

The government’s borrowing is set to explode, and it will have market repercussions. From the Northman Trader at northmantrader.com:

Have they all lost their collective minds? Look I get that some people are leaning Democrat versus Republican and vice versa and that’s fine, but what exactly are voters getting? If, on the one hand, you think Democrats tax and spend too much you get Republicans on the other hand who cut taxes with disproportional benefit to the top 1% and then spend even more. Fiscal conservatives? Please.

In early February the US government was already scheduled to borrow nearly $1 trillion this year. 

A week later and that figure is already out the door as this week both parties agreed to expand spending caps seemingly preparing for World War III. An incremental hundreds of billions of dollars to the military budget alone in just 2 years. What for? To what end? It’s a bonanza for defense contractors surely and the president apparently wants a parade, but have we entered the math no longer applies zone?

The numbers are staggering:

The end result? Much, much more borrowing and deficits into the trillion+ range forever and ever amen:

2019? Looks lot be $1.4 Trillion.

I didn’t see these figures mentioned in any campaign brochures have you? And this is all pre-recession folks. We get a recession and you are looking at 2-3 trillion dollar deficits.

Think I’m going hyperbole on you?

Watch this: Here’s a chart I posted back in 2016 when I called all this Empty Promises. Look at what the CBO then had projected in terms of coming deficits for 2018 and 2019:

I spot roughly $500B for 2018 and a little over $600B in 2019. Now we’re looking at figures double these for the same time frame and that’s ASSUMING the rosy growth forecasts they’ve all baked into these forecasts come to fruition.

These numbers don’t represent a slight increase, they represent a deficit explosion and the CBO forecast from 2016 for the 10 years into 2026 are already hopelessly outdated. At the current rate we’ll be hitting $24 trillion by the next presidential election.

To continue reading: Rising Debt + Rising Rates

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Unleash The Debt: Why The Senate Budget Deal Is Sending Yields Surging, by Tyler Durden

Posted on February 9, 2018 | Leave a comment

It’s no mystery why yields are surging: supply and demand. There’s going to be a lot of government debt, and the central bank is now a seller of said debt. From Tyler Durden at zerohedge.com:

When we commented last night on the Senate’s proposed bipartisan “deficit-busting” spending deal – one which will raise spending caps by $300bn over the next two years and incorporate a suspension of the debt limit until March 2019 – we observed that “the agreement will achieve one thing – lead to a surge in US debt issuance, and – by implication – even higher yields, leading to an even steeper drop in the market, not to mention more frequent VIX-flaring episodes.”

With yields jumping and stocks sliding, so far this prediction appears on target.

As a reminder, one month ago Goldman predicted that  US debt issuance would more than double, rising from $488bn in 2017 to $1,030 billion in 2018.

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Of course, now that the spending caps have been raised by $300 billion, this implications is that the US deficit will surge, and net Treasury debt supply – needed to fund the deficit – in 2018 will get even bigger, something which is duly reflected in today’s surging 10Y yield.

But how much will the proposed deal spike the US deficit by? In a note from BofA’s chief rates strategist, Mark Cabana, we find the answer:

Assuming the bill becomes law, our deficit and Treasury supply estimates will be marked higher.

Yesterday’s bipartisan Senate agreement included a deal to fund the government beyond 8 February and boost spending levels for defense and non-defense programs over the next two years. The $300bn increase over the next two years is modestly larger than we expected and caused us to raise our deficit forecasts by $35bn and $20bn to $825bn and $1,070bn, respectively, assuming the law passage (Table 1).

Not all of the cap increase will translate into direct spending in each fiscal year given actual outlays can be spread over several years. Moreover, some of the increase in the spending caps came from budget gimmicks that just shifted funding toward domestic nondefense spending from other budget provisions; this is why our deficit estimates boost is below the total cap increase. The increase in disaster relief spending was generally in line with our estimates, which did not result in any revisions.

To continue reading: Unleash The Debt: Why The Senate Budget Deal Is Sending Yields Surging

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Republican Fiscal Hawks Revolt Against Budget Deal, Suspension Of Debt Ceiling, by Tyler Durden

Posted on February 8, 2018 | Leave a comment

Democrats and Republicans have reached their time-honored budgetary “solution” to a legislative impasse: Democrats get more vote-buying social spending and Republicans get more vote-buying military spending. To their credit, there are a few Republicans who can’t stomach it. From Tyler Durden at zerohedge.com:

As more details emerged about today’s bipartisan Senate budget deal, which will lift spending caps by $300 billion above the current limit and which prompted today’s sharp Treasury selloff, it was revealed that the agreement would suspend the federal debt ceiling through March 1, 2019.

This, together with the generous spending terms which are sure to blow out the US budget deficit even more than recent troubling forecasts such as those from Goldman, which recently predicted  US debt issuance would more than double, rising from $488bn in 2017 to $1,030 billion in 2018…

asd

… prompted a revolt among GOP conservatives against the massive bipartisan deal, who complained that the GOP could no longer lay claim to being the party of fiscal responsibility.

“I’m not only a ‘no.’ I’m a ‘hell no,'” snapped Rep. Mo Brooks (R-Ala.), one of many members of the conservative Freedom Caucus who left a closed-door meeting of Republicans saying they would vote against the deal.

According to The Hill, one of the Freedom Caucus leader, Rep. Dave Brat (R-Va.), called the budget “a Christmas tree on steroids.”

“This spending proposal is disgusting and reckless — the biggest spending increase since 2009,” conservative Rep. Justin Amash Mich.) tweeted after the meeting. “I urge every American to speak out against this fiscal insanity.”

But the focal issue appears to be the debt hike, which is giving conservatives “heartburn,” said Rep. Dennis Ross (R-Fla.), a member of the GOP vote-counting team.

The swift backlash from fiscal hawks means that Speaker Paul Ryan (R-Wis.) and his leadership team will need dozens of Democratic votes to help get the caps-and-funding deal through the lower chamber to avert a government shutdown set for midnight Friday. At the same time, some Republicans predicted a majority of the majority would back the package.

To continue reading: Republican Fiscal Hawks Revolt Against Budget Deal, Suspension Of Debt Ceiling

 

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