Monday, September 14, 2009

Interesting Budget Numbers

As many who read my blog know, the CBO-estimated 2009 deficit (the annual contribution to the national debt) is currently at a raging $1.85T shortfall. The 2009 budget estimate used to look like this:


  • Estimated receipts for fiscal year 2009 are 2.7 trillion(+7.1%).
  • Mandatory spending: $1.89 trillion (+6.2%)
  • Discretionary spending: $1.21 trillion (+4.9%)
Even though the original estimate assumed a near-record $400B shortfall, we've managed to miscalculate by a mere $1.45T, in just one year, according to the most rosy estimate on planet earth. In fact, the current CBO growth model, one that still tacks $5T in new debt on to the total national debt by 2019, assumes 4.1% annual GDP growth out to 2019.

My question is a simple one: Gee, do you think 4.1% annual GDP growth is just a bit optimistic?

The current math looks something like this:

Let's assume the government's $1.5T unforeseen shortfall is half revenue loss and half spending gain. That amounts to $2T in revenue (shockingly, our current deficit now = our total revenue; like charging up $200K per year on credit cards if you make $100K), a 25% annual decline from the projected number. Spending works out to be a similar a 25% annual increase.

Now, if you extend the actual trend to 2019, you find a mere $200T in new debt. Probably closer to the truth. least for a few years, until something snaps.


  1. As I understand it, virtually all currencies are deflating.

    Why can't the U.S. and the E.U. countries, etc. just continue buying each other's debt, (backdoor QE), at least during a deflationary period? At what point and why does that become a problem?

  2. "Why can't the U.S. and the E.U. countries, etc. just continue buying each other's debt"

    Hi David,

    Unfortunately, as of 1913, the US doesn't make monetary policy. Policy is dictated to us by the private, 100% for-profit Federal Reserve banks. So the answer to your question is, "because it is not profitable to do so."

    The bottom line is this:

    The Fed (= a cartel of 12 private banks headed by the Bank of NY) does nothing to help the USA that does not turn a greater profit, because they can't, they have a fiduciary duty to their private shareholders, not to U.S. citizens. U.S. citizens are the Fed's golden goose, and just as the 1930s proved, the Fed will (must) eat a sick goose before they pay money out of pocket to take it to the vet.

  3. what's the profit motive for the Fed to be buying 1.25T worth of MBS, and 300B of treasuries?

  4. "what's the profit motive for the Fed to be buying 1.25T worth of MBS, and 300B of treasuries?"

    They print the cash to do it, so it costs them nothing. They print and buy as much as they think will net them genuine profit, preferably without killing the golden goose.

    They also want the deflation to continue, since it increases the value of the $400B we pay them in annual interest payments (and growing). It's a balancing act - between appearing concerned for political reasons (lest they lose their fiat), and printing/lending just enough to keep the goose alive while allowing his liquidity crises to accelerate the value of the interest cash flow already committed.

    All "creditors" love deflation (the Fed isn't really a creditor since they keep no reserves, they back loans only by fiat). Deflation breaks borrowers and increases the purchasing power of interest payments made by those that do not break.

  5. thanks for the reply. here's something i don't get: you say $400B we pay them in annual interest payments (and growing). Don't we actually pay this interest to holders of treasuries, of which the banks are a small fraction? (I remember reading somewhere that banks' treasury holdings are at long-run lows).

    And another question: what would it take for you to change your hyper-deflationary thesis? I assume if the Fed monetized $20T worth of debt, that would change things?


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