Budget Still Out of Control

You can argue that the dialogue around cutting the budget going forward is a good start, but increasing the deficit to $1.6 billion from an initial $1.4 billion is the wrong direction. Bloomberg details:

President Barack Obama will send Congress a $3.7 trillion budget that would reduce deficits by $1.1 trillion over a decade, setting up a battle with Republicans who have already deemed the plan insufficient to reduce federal debt.

The deficit for the current fiscal year is forecast to hit a record $1.6 trillion -- 10.9 percent of gross domestic product -- up from $1.4 trillion the administration estimated previously, according to documents released this morning by the administration.

Source: GPO Access

Growth in Treasury Budget Deficit Slows

Still catching up on yesterdays... the below shows the latest Treasury budget in nominal and relative (to GDP) terms... improving in second derivative terms.

It also puts the $900 billion in Treasury purchases ($600 billion in new QE, $300 billion from Mortgage purchase proceeds) in perspective (i.e. that is a LOT of purchasing).

Source: Treasury / BEA

Treasury Budget and Reliance on the Private Sector

The AP details:

The budget deficit for March showed a dramatic decline as the Obama administration formally entered a lower ultimate cost for the government's $700 billion financial bailout program.

The Treasury Department said the deficit for March totaled $65.4 billion, compared to a $191.6 billion imbalance a year ago. However, $115 billion of that improvement occurred because the administration lowered its estimate of the total costs for the Troubled Asset Relief Program.

Even with the change, the administration is still projecting that the budget deficit for the entire year will surpass last year's all-time high of $1.4 trillion.

The below chart shows the year over year change in receipts and outlays. This is where things will be interesting to watch. On one hand you have receipts leveling and possibly beginning to grow (a good thing) while on the other hand you have government spending no longer being a "stimulus" to further growth.

In a nutshell... this is where private demand needs to take over for further recovery. While recent data has shown relative strength in the private sector, that strength will be even more important going forward as the public sector will no longer be relied upon for marginal demand.

Source: Treasury

U.S. Treasury Deficit More than 10% of GDP

Bloomberg details:

The U.S. registered its largest December budget deficit on record as higher unemployment reduced revenue and the government spent money to help the economy recover.

The excess of spending over revenue rose to $91.9 billion last month, compared with a deficit of $51.8 billion in December 2008, the Treasury Department announced today in Washington in its monthly budget statement. The U.S. has posted a record 15 straight monthly deficits.

The December figure caps a calendar year in which the deficit widened to an all-time high, featuring unprecedented government spending to help engineer an economic recovery. The deepest recession in seven decades also resulted in the worst year for tax collections since 2004, according to calculations by Bloomberg News, as companies suffered and more Americans were shuffled to the unemployment line.

Rolling 12 Month Receipts - Outlays - Surplus/Deficit as a Percent of GDP

Please note that Q4 '09 GDP is estimated at 4% annualized.

Source: Treasury / BEA

Treasury Budget: "Only" $120.3 Billion Deficit

Reuters with the details:

The United States posted a smaller-than-expected $120.3 billion budget deficit in November, Treasury Department data showed on Thursday.

In November, outlays fell for the second straight month, dropping to $253.9 billion from $311.7 billion in October and compared with $270 billion in November 2008, Treasury said.

Receipts totaled $133.6 billion, down from $135.3 billion in October and the lowest for November since 2005, the department said. Receipts in November 2008 stood at $144.8 billion.

The deficit over the two months of the new fiscal year to date now stands at $296.7 billion compared with $280.7 billion for the same period a year ago and the record $1.4 trillion in the just ended 2009 fiscal year.

I am not making the case that getting spending in check is not a good thing in the long run (and the reduction was marginal). However, less government spending will be another reason why the recovery may not live up to the hype priced into risk assets. Back to Reuters:

"Those who are waiting for a V-shaped rebound are probably going to be disappointed," Penrod said. "It is not going to be a one-step recovery, it is going to be more baby steps as we move through this."

Source: Treasury

Another Jobless Recovery, Even with a Deficit Spike

The Office of Management and Budget just came out with their revised Mid-Session Review budget of the U.S. Paul Krugman commented:

What everyone should be focused on is the sheer awfulness of the economic projections. OMB has unemployment still at 9.7% at the end of 2010; still at 8% at the end of 2011. These numbers cry out for a more aggressive economic policy. If that’s politically impossible, we’re really in terrible shape.

True, the projections are for a "recovery" with a 9.7% unemployment rate in 2010 and 8.6% in 2011 (not sure how much of a recovery it will feel like).



But, how much more aggressive should the government be? While Krugman may be right that it isn't enough, it is a solid $2 Trillion more than was previously budgeted. Politico details:

The White House Office of Management and Budget’s Mid-Session Review, an annual update between budgets, put the 10-year deficit estimate at $9.051 trillion, up from the previously projected $7 trillion. The administration had leaked the figure over the weekend.

How large is $9 trillion? Well, it is about $3 trillion more than the cumulative deficit from 1980-2009 (ignores inflation, but a sizable chunk of change none-the-less).



Source: Whitehouse.gov

Spending Soars, Receipts Cliff Dive, Treasury Budget Crashes

Bloomberg details (bold mine):

The U.S. budget deficit reached a record for the first 10 months of the fiscal year and broke a monthly high for July as the recession curbed revenue and the government ramped up spending to rejuvenate the economy.

The shortfall so far for the fiscal year that ends Sept. 30 totaled $1.27 trillion (actually its $1.43 trillion, but what's $160 billion) compared with a $389 billion year-to-date gap in 2008 (actually $370.1 billion), the Treasury said today in Washington. The excess of spending over revenue for July climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history.

Taking that ten-month (year to date) period and roll it back to 1981 (as far back as the data I could find goes) and we get the following.

Back to Bloomberg:

Tax receipts are sliding and spending is surging even as some economists say the recession may have ended. The government is trying to spark business and consumer spending through a $787 billion stimulus plan spanning tax cuts, infrastructure projects and a goal to create or save 3.5 million jobs. President Barack Obama also is pushing a health-care overhaul that may cost $1 trillion over a decade.

"Tax receipts are sliding and spending is surging" is right.

Source: Treasury

Gov't Spending Spike and 15% Less Revenue = Lots of Red

The WSJ details:

The U.S. budget deficit broke past $1 trillion in June, a grim testament to the recession and financial crisis. The federal government spent $94.32 billion more than it made in the ninth month of fiscal 2009, the Treasury Department said Monday in its monthly budget statement.

With that latest spill of red ink, the budget gap, for the first nine months of fiscal 2009, widened to $1.086 trillion. A year earlier, the deficit was $285.85 billion for the same nine months.

In June 2008, the government ran a surplus of $33.55 billion. Fiscal years start Oct. 1. The White House has predicted the deficit will climb to $1.841 trillion this fiscal year. The biggest deficit for any fiscal year on record is $454.8 billion, which was rung up in fiscal 2008.

A survey of economists by Dow Jones Newswires forecast a June deficit of $97.0 billion. June federal government spending totaled $309.68 billion, compared to $226.37 billion in June 2008.

Year-to-date federal government spending totaled $2.67 trillion, compared to $2.22 trillion in the first nine months of fiscal 2008.

The chart below shows the rolling twelve month change in receipt, as well as outlays, and the variance between the two (An inexact formula? Yes, but it puts this all in perspective). What this shows is a massive spike in spending AND a massive cliff dive in receipts.

Source: Treasury

Government Receipts Down 34% Year over Year

Bloomberg noted with regards to yesterday's budget release:

The U.S. reported the first budget deficit for April in 26 years, recording a shortfall in the month that usually sees a jump in individual tax payments before the Internal Revenue Service’s mid-month deadline.

“When the government can’t post a surplus in April, you know things are dire,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “It’s going to take a very long time until we see anything close to a balanced budget.”

Stripping out receipts ONLY, we see a whopping 34% decline from April 2008.



Source: Treasury

Obama to Cut 0.5% of Budget... Is This a Joke?

The Washington Post details:

"We can no longer afford to spend as if deficits do not matter and waste is not our problem," Obama said. "We can no longer afford to leave the hard choices for the next budget, the next administration, or the next generation."

But the proposals to trim 121 programs identified by the White House as wasteful or unnecessary amounted to only one-half of 1 percent of the $3.55 trillion budget Obama has submitted for the fiscal year that begins in October.

Budget Cliff Dive (February)

File this under "a day late". The AP reports:

Lower tax revenue and massive government spending on the bank bailout pushed the federal deficit to $765 billion in the first five months of the budget year, well on its way to hitting the Obama administration's projection of a record annual imbalance of $1.75 trillion.

The Treasury Department also said Wednesday that the February deficit reached $192.8 billion. That's a record for the month and up 10 percent from a year ago, but below analysts' expectations of $205.7 billion.

With seven months left in the current budget year, which ends Sept. 30, the deficit already has shattered last year's record annual gap of $454.8 billion.

Source: Treasury

Rebound on the Way... I Mean It... Any Year Now... And It Will Be HUGE

The Council of Economic Advistors via Whitehouse.gov responds to criticism of their "rosy" projections in the Administration's budget for economic growth:

But, a key fact is that recessions are followed by rebounds. Indeed, if periods of lower-than-normal growth were not followed by periods of higher-than-normal growth, the unemployment rate would never return to normal.

Another key fact is that deeper recessions are typically followed by more rapid growth. Table 2 shows the peak-to-trough decline in real GDP in each of the last 10 recessions, along with the average growth rate (at annual rates) in the 8 quarters following each recession.

Interesting, but...

• This is like saying "if you survive cancer, you will live a great life"
• How many of these recessions involve systemic financial meltdowns... none you say?
  
• After a recession, the economy is smaller... so OF COURSE the economy will bounce back and appear to grow at a higher rate as it trends back to norm (i.e. if the economy goes down 50%, then rallies 100% it is only back to where it started... extreme, but you get the point)

Update: As reader AJK points out:

I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?

You are correct: BEA

How Big is the Budget: Part II

While Felix looked at the deficit in terms of past budgets and the budget in terms of per household averages, to properly put it in perspective one must compare it to the earning power of the United States (i.e. GDP). Taking historical budget data from the CBO, comparing it to nominal GDP from the BEA, and assuming no GDP growth in 2009, we get the following chart showing a spike in the budget from its 18-22% range during 1969-2008, to above 25%.



The next chart details the year over year increase in the budget, as a percent of GDP. This year budget will take up a whopping 4.5% more of GDP than it did a year ago.



Source: CBO / BEA

How Big is the Budget: Part I

There is no question that the new budget and deficit is BIG. Felix at his Market Movers blog tries to put the current budget in perspective:

It's pretty much impossible to get one's head around the sheer enormity of the numbers in Barack Obama's first budget. But it's important to try, and one anonymous commenter has a very good point: the entire federal budget, as submitted by President Clinton in 1996 through 1999, was smaller than the budget deficit that Obama is proposing for next year.

While this obviously ignores inflation, it does put the vastness of the budget in perspective. His next comparison brought out a lot of criticism from readers, but I think they miss the point (remember, this is just about putting it all in perspective):

Obama's total budget is $3.6 trillion, which works out at $34,000 per household; median household income is about $50,000. Which basically means that for every dollar that a US household earns, the US government plans to spend 68 cents next year. And the ten-year T-bond still yields less than 3%. Extraordinary.

Criticism was raised that he was comparing a per family average (the budget portion) with a median (rather than average) household income. His point (I believe) is that for the median family out there earning ~$50,000 this year, the government is chipping in an additional $34,000. That my friends, is some government spending!

Treasury Budget Soars

Xinhuanet reports:

The U.S. federal budget deficit soared to 569 billion dollars in the first four months of the current fiscal year, the highest on record for this period, the Treasury Department reported on Wednesday.

Rolling back that same fourth month time frame back to the mid-1980's we see just how unprecedented this truly is.



Not a surprising result in an economy in which production / employment (thus taxes) are sharply down, while stimulus / bailouts are sharply up. Looking at the 12 month change in the level of receipts and outlays over that same period, we get the following chart which must make all Keynesian's proud and conservatives shudder.

Source: Treasury

Everyone's Delevering... Well, Almost Everyone

MarketWatch reports:

The U.S. federal government deficit soared again in November to $164.4 billion, the Treasury Department reported Wednesday. This is a record shortfall for the month of November. The deficit is $6.7 billion below the November deficit estimated earlier this month by the Congressional Budget Office. The deficit in November 2007 was $98.2 billion. For the first two months of the fiscal year, Treasury reported a record deficit of $401.6 billion. The government spent $99.6 billion in November in various bank bailout programs.

Source: Treasury

U.S. Budget Deficit... $2 Trillion!?!?!

Per Bloomberg:

Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger.

and

The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley's chief economist. Two weeks ago, budget analysts said the measures might push deficit to as much as $1.5 trillion.

Well, I calculate the number closer to 14% ($2 Trillion / GDP in Q2 of 14.3 Trillion). Either way, an expected deficit more than 2x the previous record set more more than 25 years ago.

United States Balance Sheet / Dependence on Foreign Capital

Ben Bittrolff points us to an interesting take on the fragility of the current International Financial system via Bloomberg:

"A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank.

"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. "If it is not the end of the world, it is the end of the current international financial system."

"The Chinese are getting a little feisty as their losses continue to mount.

"China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack."

Lets take a look at just how large the U.S. dependence on foreign investors is:

Source: Federal Reserve

The Military Industrial Complex

I highly recommend The Economic Cost of the Military Industrial Complex The United States for an abundance of information on the unbelievable scale of the U.S. military. One snippet:

The only superpower remaining on earth, currently spends more on military than the next 45 highest spending countries in the world combined. The U.S. accounts for 48% of the world’s total military spending.

Our most recent war has now cost more real dollars than WW I, the Korean War, and the Gulf War combined (and that's after accounting for inflation)...

Budget Deficit

The Bush administration on Monday cut its budget deficit forecast for the current year but expanded it to a record $482 billion for 2009 as the weakening U.S. economy slows revenues and spending remains high.

The White House said the budget shortfall for fiscal 2008, which ends September 30, will likely come in at around $389 billion, below its $410 billion estimate released in February, because receipts were holding up better than expected.

Backtrack to 2003:

(AP) President Bush's goal of cutting in half a projected $500 billion federal deficit within five years is being dismissed as too timid by conservatives, unachievable by analysts and laughable by Democrats. Mr. Bush will include the objective in the $2.3 trillion budget for 2005 he sends Congress in February, nine months away from the presidential and congressional elections. The goal is backed by many Republicans, but conservatives want a bolder move against the record deficits and big spending increases the administration has run up...

Other Sources: Reuters, CBO