Thursday, March 11, 2010

Budget Deficit On Parabolic Path

In February, the U.S. Government ran its largest ever monthly deficit — $221 billion, the U.S. Treasury said in releasing its monthly budget statement Wednesday.  By comparison, the government in February 2009 ran a budget deficit of nearly $194 billion.

The U.S. February deficit came in below the Congressional Budget Office's (CBO's) estimate of $223 billion.  The CBO projected the year-to-date budget deficit would hit $655 billion.

The CBO has forecast a $1.56 trillion deficit for fiscal year 2010, or 10.6% of the economy measured by Gross Domestic Product (GDP).  This funding gap is up from a 9.9%  share of GDP in 2009.  But, the shortfall was forecast to shrink to 8.3% of GDP in 2011.  This would be a drop of 50% from the level Obama inherited when he took office by the time his term ends in January 2013.  Right! (Sarcasm intentional!)

The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession.  Obama, a Democrat, and ever so eager to accept responsibilty (sarcasm intentional!), pinned the financial mess firmly on his Republican predecessor President George W. Bush. 

The CBO's budget deficit forecasts are premised on some pretty flimsy assumptions, such as that the GDP will grow by 2.7% in 2010, 3.8% in 2011 and more than 4% in successive years.  As readers of Marko's Take already know, the economy is poised to re-enter the second dip of the Double-Dip-Depression, therefore, this assumption is preposterous.

The budget also assumes unemployment will fall to 8.2%  in 2012 from 10% this year, while inflation stays mild and interest rates rise only slightly. 

Government receipts posted a rare increase in February, while soaring spending pushed the nation's year-to-date deficit up to a record $651.60 billion.

The government's fiscal 2010 year-to-date deficit is up 10.5% from fiscal year 2009.

February 2010 marks the 17th consecutive month in which the U.S. has posted a budget deficit.  The country has posted a budget deficit for 43 of the last 56 Februarys.

There was some good news. The government saw its monthly receipts in February increase on a year-over-year basis for the first time in nearly two years.  An increase in corporate tax collections, coupled with lower refunds to individual taxpayers, drove receipts up 23% to $107.52 billion in February 2010 from $87.31 billion in February 2009.

The U.S. spent $16.1 billion last month to service its debt, an annualized amount of approximately $200 billion.  Given the nearly $14 trillion  in national debt, a 1% increase in interest rates would add $140 billion to debt service.  That's why interest rates will NOT be allowed to rise until forced to do so by hyper-inflation and the demands of the market.

Undoubtedly, the "rosy" projections of the CBO will vastly understate the budget deficits that will ultimately be realized.  In turn, this will create demand to borrow more money, which will expand the deficit and the vicious cycle will continue until the U.S. Dollar is debased to nearly worthless.

Think the country's on the right path?  If so, TAKE ME ON!

Marko's Take

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  1. Marko,
    This is somewhat related to today's article, but lately the dollar has been down ,yet gold has hardly gone up. In the past when the dollar dropped, gold/silver usually always went up.This past week the cartel has been busy at work,trying like mad to drive the gold price down,for the usual reasons.( just look at the price action on Monday and Wednesday )but what is strange is that the dollar has been down.Not sure what to make of this.What is becoming more and more apparent is that gold and silver are
    decoupling from the dollar ,I guess. Today the dollar was down almost $.16 and gold was barely up, very strange.I feel that something very big ( news ) will be coming out soon to make gold go alot higher, and the cartel( bullion banks,Fed )are pulling ever trick out of its bag to drive the price down. Whats your take on the gold action this week ?

  2. Marko,

    This week has been very strange , the cartel has done just about everything in its power to bring the price down .Just look at what happened on Monday and Wednesday,it was just ridiculous to say the least.What is even stranger is that the dollar has been going down,and in the past that would of made gold soar, but not this time.Not sure what to make of this. I feel the cartel is trying like mad to get gold/silver down, maybe because some news will be coming out soon that is gold friendly.What is your take on the gold price action this week and the dollar .
    Robert I

  3. Hi Robert aka rdisrael,

    I'm looking for Gold to finally end this retracement period before entering a mania phase which ought to take us well into next year. The only reason the Dollar holds up at all is the Euro is even worse shape and Pound is, well, getting Pounded.

    I'm still a strong buyer here!


  4. Well, I'm glad you're out there to wade through all the numbers. But while my head may spin with the math-ness of it all, I am smart enough to know that if you spend more than you take in AND you do it with a fiat currency? You're in deep doggie doo doo.

    Ergo, our country is most definitely not on the right path. Start. Over.

  5. Moi:

    Wade through is right. Waist high!


  6. I'm I being too comfortable in saying, "this issue of budget spending has been around for years and years and years". I hate to say, why is it different now? Have I(we) been comfortable in having it this way? What I am getting at is that all the gloom and doom of economic policy (or lack of any) never seems to really effect anything. Sure, purchasing power of the dollar is terrible over the years, but all in all, life goes on, we eat, drink and drive our cars. And yes, 10% or more are unemployed (very sad) ..... but 80-90% still do have a job. And yes, some are not making much, only because they spend too darn much themselves. Tough issues, just get tired of all the gloom and doom.

  7. Hi Anon:

    Couple things:

    It took years of excess in the Nasdaq before that bubble popped. Years of excess in real estate before that bubble popped. Budget deficit timing is hard to predict.

    Unemployment is NOT 10%, but in reality closer to 22%, which is close to Great Depression levels...Yes, doom and gloom is getting old, but if someone doesn't speak up and offer solutions, which we do if you the archives, than who will?

    Thanks for the comment!



Take me on!