US sets even more records for deficits

[Balog]

Yeah, this isn't going to end well. Deficit is 4x what it was last April. Time to read up on your Argentinean history boys...

U.S. posts 19th straight monthly budget deficit

http://www.reuters.com/article/idUSTRE64B53W20100512

(Reuters) - 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 said on Wednesday.

It was more than twice the $40-billion deficit that Wall Street economists surveyed by Reuters had forecast and was striking since April marks the filing deadline for individual income taxes that are the main source of government revenue.

Department officials said that in prior years, there was a surplus during April in 43 out of the past 56 years.

The government has now posted 19 consecutive monthly budget deficits, the longest string of shortfalls on record.

For the first seven months of fiscal 2010, which ends September 30, the cumulative budget deficit totals $799.68 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. It was a record level of outlays for an April.

Department officials noted there were five Fridays in April this year, which helped account for higher outlays since most tax refunds are issued on that day.

But for the first seven months of the fiscal year, outlays fell to $1.99 trillion from $2.06 trillion in the comparable period of fiscal 2009, partly because of repayments by banks of bailout funds they received during the financial crisis.

Receipts in April -- mostly from income taxes -- were $245.27 billion, up from $153.36 billion in March but lower than the $266.21 billion taken in during April 2009.

Receipts from individuals, who faced an April 15 filing deadline for paying 2009 taxes, fell to $107.31 billion from $137.67 billion in April 2009.

The U.S. full-year deficit this year is projected at $1.5 trillion on top of a $1.4 trillion shortfall last year.

White House budget director Peter Orszag told Reuters Insider in an interview on Wednesday that the United States must tackle its deficits quickly to avoid the kind of debt crisis that hit Greece.

(Reporting by Glenn Somerville, Editing by Diane Craft)

[Balog]

Top budget official predicts we need to make changes soon to avoid going Greece.



(Reuters) - U.S. lawmakers must act quickly to tackle a large budget deficit if the United States wants to avoid the kind of debt crisis that hit Greece, the White House's top budget official said on Wednesday.

"We want to make sure we never wind up facing the sorts of choices that Greece now faces," White House budget director Peter Orszag told Reuters Insider in an interview.

While the United States was in "no imminent danger" of a crisis of Greek proportions, Orszag said "I would prefer to be addressing this sooner rather than later."

The U.S. budget deficit hit $1.4 trillion in 2009, just shy of 10 percent of gross domestic product, when the economy was in a deep recession. The gap could be even larger this year.

A bipartisan commission of U.S. lawmakers looking for ways to tackle the U.S. budget deficit met for the first time in late April and is due to make proposals by December 1.

He said U.S. politicians needed to come up with more ambitious proposals for ways to return the country's public accounts to health.

"Frankly the political system does not deal well with long-term problems until they become a crisis, and we do not want this to become a crisis," he said.

"Everyone always wants the deficit to be addressed but they're against everything you could do to address it," he said. "Proposals to cut government spending, if you then look at the specifics of what people are willing to cut, it often amounts to a lot less."

Greece's crisis worsened this year when the government revealed it was running a much higher budget deficit than thought, spurring investors to drive up Greek borrowing costs.

In exchange for emergency aid from the European Union and International Monetary Fund, Greece was forced to cut wages and other public spending sharply and raise taxes.

Concerns have grown that other European countries facing sluggish growth and rising deficits, including Spain and Portugal, may also be at risk, prompting the EU to approve a $1 trillion bailout earlier this week.

The United States also spends more than it earns in tax revenue. But global investors have remained eager buyers of U.S. Treasury debt, particularly during times of crisis.

Orszag said this buys lawmakers some time but should not encourage complacency. "Right now, there is no imminent danger, but to try to predict exactly when that will shift is a fool's errand."

CHANGES AFOOT FOR CARRIED INTEREST

Orszag declined to address the viability of a value-added tax as a U.S. deficit-cutting measure, saying the White House wants to give the commission time to present its proposals.

But he did say that there were likely to be legislative changes soon in the way the United States taxes profits earned by venture capital and private equity managers.

A measure to change the tax treatment of fund managers' profits known as carried interest passed last year in the U.S. House of Representatives, which has approved the changes several times only to have them die in the U.S. Senate.

The changes in accounting for carried interest could come "within the next few weeks," Orszag said.

"Venture capital and private equity funds may be affected," he said. "I'm at least unaware of any credible evidence that there would be any significant adverse effect."

Congressional sources said last month that U.S. lawmakers were reexamining the tax treatment of carried interest.

(Reporting by Emily Flitter and Steven C. Johnson; Editing by Chizu Nomiyama)

[RevDisk]

If the deficit is not handled, eventually the following will occur.  A treasury securities auction will fail or just plain not be enough.  The Treasury should have enough cash on hand to cover that, and have another auction with much higher interest rates.  That'll be bad, but endurable.  Just more of the budget goes to paying interest on the Treasury notes.

The above would also apply if the credit rating of the US govt was downgraded.


The "Armageddon" scenario would be the first time the US defaults on a payment.  Then things fail in a big way.  Folks will stop buying treasury securities if they're not going to be paid.  Folks may or may not start dumping their t-notes.  The old expression applies.  If you owe the bank $100, you have a problem.  If you owe the bank $100m, the bank has a problem.   Basically, the day that treasury securities (debt) don't cover the deficit, the US starts running out of money.  Whenever the reserves are depleted, things get real interesting. 

Odds of Armageddon happening are very very low.  However, odds are very high that if interest rates spike, problems will show up in a hurry.  Cuts or tax hikes will be needed, and it will be messy.  The only way I realistically see Armageddon happening is if there is political deadlock over the cuts/hikes and we default by default.  Probably not default on the T-notes, but vendors, employees or entitlements.

[cassandra and sara's daddy]

you guys are harshing my mellow  big time

[Regolith]

I have something like $400 in treasury bonds that matured several years ago.  I've been waiting on cashing them out for a rainy day.  I'm starting to think I should just go ahead and do it and toss the cash into my savings account...

[KD5NRH]

Adjusting for inflation, what was FDR's deficit?

[Sergeant Bob]

Adjusting for inflation, what was FDR's deficit?

No need to adjust for inflation (although the numbers would be interesting). It is expressed a % of GDP. IIRC, from a graph Glenn Beck had on his show, FDR's was the highest, until Barack Hussein Obama Mmm! Mmm! Mmm!, got into office, and FDR's numbers were nowhere near Barry's.

[Headless Thompson Gunner]

Yep, Barry's deficits are truly unprecedented.

It's actually pretty unfortunate.  Barry happened to chance on the Presidency at one of the most opportune times (for him).  Circumstances allow him to borrow and spend without any real limits.  As long as the financial world is hurting, the old reliable US treasury will keep finding a bid.