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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