Yesterday, we wrote about the huge budget deficits plaguing the Euro-Zone. Greece, the center of attention, has a budget deficit equivalent to approximately 14% of Gross Domestic Product (GDP). The United States, thought to be much more fiscally prudent, is current running a deficit of 12% of GDP. Latest monthly budget numbers for April indicate a rapidly deteriorating fiscal situation.
The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department reported on Wednesday.
It was more than twice the $40 billion deficit that economists had forecast and was ominous since April marks the filing deadline for individual income taxes that are the main source of government revenue.
In prior years, there was a surplus during April in 43 out of the past 56 years. The government has now posted 19 straight monthly budget deficits, the longest string of shortfalls in history.
For the first 7 months of fiscal 2010, which ends September 30, the cumulative budget deficit totaled nearly $800 billion, down slightly from $802.3 billion in the comparable period of fiscal 2009.
Outlays during April rose to $327.96 billion from $218.75 billion in March and were up from $287.11 billion in April 2009. Government spending for April was a historical record.
Receipts in April were $245.27 billion, up from $153.36 billion in March but lower than the $266.21 billion taken in during April 2009. The year-over-year reduction reflects lower income tax collections as receipts from individuals fell to $107.31 billion from $137.67 billion in April 2009.
Historically, the current deficit is the highest as a percentage of GDP with two exceptions: toward the end of World War I when it hit nearly 12% in 1918 and then 17% in 1919. During World War II, the deficit exceeded 20% of GDP from 1943-5, peaking at nearly 30%.
Post Second World War, the percentage hasn't breached the 10% level until this year when it is expected to hit 12%. In 2009, it came in just under at 9.9% of GDP.
One of the major stumbling blocks to deficit reduction is the composition of the budget itself. More than 60% of the deficit is made up of non-discretionary items such as Medicare, Social Security, Welfare and interest on the National Debt.
The math gets very ugly here. Total spending is running at $3.8 trillion. The deficit is expected to reach $1.5 trillion this year. Even if defense were cut ENTIRELY to zero, the defict would STILL EXCEED $500 billion! If all non-discretionary spending were cut to zero, the budget would barely balance.
The math gets even uglier. The bulk of Government spending is destined to rise sharply without a major and politically unacceptable restructuring. Social Security and Medicare cater to the old who are the fastest growing demographic.
Interest on the National Debt has been kept artificially low because of the ZERO interest rate policy of the Federal Reserve. Even if rates stay low, this year's deficit alone will result in an increase of more than 10% to the National Debt. So even if rates DON'T rise, the interest portion will still grow by leaps and bounds. Once rates do rise, the interest portion will explode and constrain future policy makers even further.
The freight train also known as government spending can only climb on a parabolic path without a major overhaul of the entire government. As unemployment is expected to stay high for an extended period of time, the U.S. can't look to income taxes to make up the growing shortfall. Clearly, the day of reckoning is fastly approaching.
For readers with a more political bent, our new You Tube channel has video blogs covering "Peak Oil", the Federal Reserve, the Legality of the Personal Income Tax and Social Security. You can access these and the others to follow in coming weeks by clicking here http://www.youtube.com/markostaketv.