Friday, December 13, 2013

The Real Budget Deficit Was $1 trillon In The Government's Fiscal 2013 Year

Someone asked me my view of the reportedly narrowing Government spending deficit. The fact is that the Government uses gimmicks in order to move expenditures "off budget" in order to hide the truth (imagine that...).  Notwithstanding this,  we can get a pretty accurate accounting of the actual cash in/cash out spending deficit by measuring the change in Government debt outstanding during any Fiscal Year period.  To be sure, the total deficit runs in the several trillions, but this would be based on GAAP accounting of all expenses, including the accumulating entitlement expenses, which we know will never be paid.

I've outlined below why, even if you want to believe the Government's story that the deficit is narrowing, it really did not.

The budget deficit is lower this year for a couple reasons, all of them non-recurring:

1) We had a big one-time in tax revenues in December/January (remember the U.S. fiscal year starts in October) because of the tax increase in capital gains on Jan 1 triggered a wave of asset sales that generated a big jump in tax revenues.  You can find charts using google that show this.

2) Removal of the Bush "tax holiday" for W-2 paycheck earners.  This increased the general level of tax revenues.  interestingly, the tax revenues started to decline a little over the summer and I saw a recent article that said States are seeing tax revenues from individuals decline.  This clearly reflects the actual reduction in jobs/wages  that is occurring.

3) One-time payments from Fannie Mae, Freddie Mac and sale of Treasury's GM stock.  Non-recurring.  self-explanatory EXCEPT, most of FNM/FRE income has been generated by accounting gains from both of them "marking to market" bad assets, just like the banks have been doing.   I haven't studied it closely and I don't know if I will, but I would bet that FNM/FRE run into liquidity problems in 2014. 

It would also make sense that Cerberus Partners is looking at buying a big stake in Fannie Mae.  Cerberus took control of GMAC before GMAC went belly-up.  Given they whiffed badly on GMAC, I suspect the same idiots there will repeat the same mistake again with FNM.  But what does Cerberus care?  It's not their money, it's the bone-headed pension fund managers that give Cerberus money to lose like that.

4) Taxes generated from real estate sales - the housing market is slowly imploding and I bet it really gets hammered in 2014.  

5) We don't know to what extent budget games have been played in terms "on-budget/off-budget accounting."  The truth is the only way to tell what the real spending deficit was is to see how much Treasury debt increased during a given fiscal year.

Now, here's the most interesting part:   Using Treasury Direct, LINK,   you can see that the Government debt increased $672 billion during FY2013.  HOWEVER, remember that right after Obama signed the temporary budget deal (after the 2013 FY), the Treasury debt jumped by $328 billion.  This was money SPENT that was borrowed using the "tricks" Jack Lew said he would use during the 2013 fiscal year.  It was debt that would have been issued in FY2013 but the Government couldn't issue it.  SO, the real spending deficit was $1 trillion even.   If you add back the FNM/FRE dividends, it was over $1 trillion.

So, you tell me.  Is the spending deficit really as low as the Obama Government is reporting?  I bet we'll see a spending deficit well in excess of $1 trillion this year because I bet that individual tax revenues will decline because of the economy.


  1. Just a $1 billion? That doesn't seem so bad. ;)

    What do you make of Stanley Fischer potentially becoming Vice Chairman of the Fed? Bloomberg had an article that seemed to imply he would be a staunch hawk and would help rein in QE. He was critical of the forward guidance policy, paraphrasing, "They don't know what they're doing."

    Something else I've been curious about...since the TBTF banks have massive reserves stockpiled at the Fed, couldn't those funds be used to unwind derivative trades that go bad? Wouldn't those reserves prevent, or at least reduce the impact of, the next financial shock?

    1. What do you make of Stanley Fischer potentially becoming Vice Chairman of the Fed?

      I say ....WHAT THE FLUCK!

      At the end of the 19th century, Matthew Mellon's great great uncle - Andrew Mellon - was one of the most powerful and richest men in the world. He was part of a small group of bankers and industrialists who not only dominated America - but were using the power of money to undermine, corrupt and control politicians, judges and the whole system of democracy.

      In a gripping narrative Tarbell described how Rockefeller's agents would swoop down on a region like Pennsylvania and use all kinds of ruthless and illegal tactics to take over small businesses and destroy the enterprising entrepreners who ran them.

      Like with the farmers, Rockefeller controlled the railroads that carried the oil - but Tarbell showed that he also used bribery, fraud, criminal underselling and intimidation to destroy anyone or anything that prevented him creating his giant monopoly.

      The second article was called The Shame of Minneapolis. In it the journalist Lincoln Steffens blew open the whole political system that governed the City of Minneapolis. Almost everyone in public office was totally corrupt including the City Boss - Mayor Ames, his henchmen and the police captains who took cuts from businesses across the city. And they used a network of criminals to get the money.

      Do you really things are any different now? He's a major player in a totally corrupt system of unaccountability and select preferential treatment.

  2. Thanks for alerting me to the typo. I probably should have scrubbed it a little better before I published it cuz I just fixed several!

  3. What if 3 percent is the new 8 percent?

    Institutional investors such as pension funds have typically built in return assumptions of 8 percent a year—a rate some of them have not achieved for more than a decade.

    Faced with slower economic growth across the world, some are cutting these long-term assumptions for the first time in a quarter of a century, with potentially far-reaching implications for pensioners, savers and asset managers.

    Since the world entered what Pimco dubbed the New Normal or slower economic growth in 2009, investors have had a relatively easy time making money thanks to cheap cash from central banks fueling virtually all asset prices. This year alone benchmark world stocks have gained 15 percent.

    But even with that, large investors,especially pension funds, have failed to achieve the 8 percent target, partly due to high fixed income holdings that returned very little.

    According to the OECD, the weighted average real net investment return of pension funds that manage combined assets of over $32 trillion was 4.4 percent in 2012, and just 0.2 percent in the year before.

    No city has as serious a pension issue as Chicago, reports CNBC's Scott Cohn. Nationwide, the municipal pension debt ranges from $800 billion-$4 trillion, he adds.

    U.S. public pension funds, which have been increasing the share of equities in their portfolio, made an average quarterly return of 3.45 percent in the first nine months of 2013, based on data from Wilshire Associates. Wilshire's data shows the median return was 5.2 percent over the last five years.

  4. On Friday December 6th 2013, FHA announced that Clark County (Las Vegas) would be reducing the FHA maximum loan limit from $400,000 to $287,500 effective January 1st 2014. Along with other detrimental conventional loan changes about to take effect in January, Bryan illustrates how and why this may have a disastrous effect on the Las Vegas housing Market.

    1. Ouch! That's going to hurt. I'm having an interesting discussion at Seeking Alpha with some market apologists who apparently don't get the affordability thing. I find it amazing that so many people don't understand how artificially low rates have been propping up home prices, even when the chart is staring them in the face!

  5. Off the topic. I remember you mentioned some time ago that you were not aware of any inventory that could be used to suppress the gold price besides the ETFs. However, according to Alasdair Macleod's conclusion, ETFs are not enough. It is the central bank's gold that bullion bank use to suppress the gold price. So does that mean you believe Alasdair Macleod is wrong? If Alasdair Macleod were right, then we perhaps need to wait much longer than expected because there is thousands tonnes of gold in central banks's vault at the moment.

    1. Most of the unencumbered gold at western Central Banks is gone. That's why Chavez repatriated Venezuela's gold while he still could and it's why Germany asked for its gold back at the Fed and the Bank of France. Note: Venezuela got its gold because it was only 200 tonnes. Germany is not getting its gold back because it's been leased out by the Fed for purposes of suppression.

      I think the OTC derivatives market for gold/silver is the main catalyst now. It is the most opaque and we have absolutely no idea what those contracts look like, who the counterparties are, etc. The only reason we know they exist is the quarterly OCC bank reports.

    2. Dave, Don't know if you have ever read Michael Noonan. His technical observations of the metals markets are quite grounded IMHO. I'm not asking you to comment, just thought I would share. If you are so inclined to comment please, by all means.

    3. Ned and I hereby invite any and all members of the "No Manipulation Club" to explain how these charts are possible in a free and fair market.

  6. The typo they're referring to is in the 2nd to last sentence in the 2nd to last paragraph.

    1. Got it - thanks! Had "billion" instead of "trillion" twice. It's just horrifying to think the Government is spending trillion in excess of revenues every year now. Mind-blowing.

  7. Also, many companies paid some of the 2013 compensation to executives and employees in 2012 before tax rates went up. This would boost 2013 tax revenues and soften 2014 tax revenues.

  8. off topic ....

    Retail Big Brother – Mannequins Are Now Using Facial Recognition Technology

    As CBS 2′s Don Champion reported, a growing number of stores are using discrete and sophisticated technology — including mannequins with facial-recognition cameras hidden in their eyes — to track shopper demographics in an effort to boost sales. Retailers say the marketing data technology allows them to cater their business to customers better, but it’s also raising privacy concerns.

    Alfonso Perez built a system called Shopperception that Walmart has utilized. It uses motion-sensored cameras to track a shopper’s product choice on a shelf and the time it takes to make a decision. Perez’s business has doubled in the past year.

    Joel Reidenberg, a professor of technology at Princeton University, said retailers have tried to keep the technology use quiet.

  9. It seems that there's this question lingering " When is the disaster going to occur or will it ? " A number of the experts have been asked in so many words over at Zero Hedge about this sort of thing.
    If you look close enough , one can see that there are already things going on that are clear indications that there is a one way arrow of direction of slow motion destruction taking place. Just try opening your own business these days and see what your faced with in fees , tariffs and other over the top charges that you will be paying.
    Or take a ride in any direction and observe the number of vacant storefronts with nothing in the display.
    Or observe the number of college students having trouble making a buck while attending school let alone finding the career of their dreams once they graduate while going back to live with their parents.
    Or pulling up to a gas pump and realizing that you will be doling a whopping 3 + $ amount for 1 gallon of gas.
    Or, or, or !!
    It is underway though sometimes very unsuspecting , all at once another black swan event will occur as an accumulation resulting from so many of the above mentioned events having taken place, +++ others to unfold , that have been surmounting and will pressure down the framework and foundation of what was so diligently built by the middle class and for so long.
    God Bless !

  10. The European Central Bank cut rates last month following a "surprise" drop in Harmonized CPI inflation to 0.7% in October. But a head-to-head comparison on the same metric (see chart) shows that U.S. inflation was actually lower, having dropped to just 0.6% in October.

    What many still fail to acknowledge is that the major Western economies – including the U.S. – are effectively becoming Japan: the comfortable consensus is that, in contrast to the Eurozone, inflation in the U.S. should be (to quote the Fed) “moving back toward its longer-run objective” of 2%, and thus not a concern.

    But should it be a concern, with yoy growth in the Personal Consumption Expenditures deflator falling to a four-year low of 0.7%, increasingly distant from the Fed’s 2% target, precisely as ECRI had predicted?

    Earlier this year we pointed out that, with the U.S. and other major Western economies experiencing slower growth in the last five years than Japan in its lost decades, long-term trend growth had already downshifted around the world, resulting in weaker recoveries and more frequent recessions than most had expected when the 21st century began. Following Japan’s lost-decades example, the policy response has been more and more quantitative easing, which has been unable to break this pattern.

    Rather, in the U.S. and the Eurozone, the central banks are increasingly failing to meet critical inflation target mandates. In reality, these major economies are already like Japan in its lost decades, recalling the economic truism that recession kills inflation.

    Indeed, harmonized CPI inflation fell to just 0.7% in the Eurozone in October. But in the U.S. it had already fallen to 0.8% by September, when inflation in both economies dropped below that in Japan.

    Ominously, ECRI’s Future Inflation Gauges remain in cyclical downturns in both the U.S. and the Eurozone. Thus, in the coming months, inflation is likely to fall further below their official targets in both economies.

  11. Don't worry about the black swan; it'll get here because these arrogant crooks will push the system once too many times.
    And nobody will like the look of it when it arrives.
    Contrary to what's being spouted by every disgusting liar, moneywhore & paid pimp planted in plain sight, some only recently, there has never ever been a fiat system that failed by deflation first.
    do some research.
    Inflation burns out the entire system, either on a slow fuse to totality, or in a catastrophic hyperinflationary blowout.
    This includes so-called hard coinage clipping & dilution, which by its very definition is inflationary (diluting the worth of money by alloying, etc.)
    eg Elizabethan England, Rome AD 240.

  12. Dave, good wrap up as always. On a different note, what's your view on the current weekness of the mining shares? E.G. Golden minerals is monkey-hammered and crushed at ~ 45 cents. Is it going bust, or (now) a compelling buy with a ~50-times recovery in the cards once gold is back in bull mode or revalues (e.g. due to a global currency reset) ? Keep up the good work. CHeers x

    1. Current weakness? The miners have been annihilated over the last 2+ years. I don't know what to say on AUMN other than if silver goes where we know it will go, AUMN will go back to $10.

      This piece by Russ Winters is excellent and the information he reports confirms and is consistent with what some mining companies have told me face to face:

  13. Zimbabwe To Ban Private Gold Trading, Mugabe Says

    Zimbabwean President Robert Mugabe said on Friday his government would soon ban private trade in gold, and require producers to sell the mineral through a state company.

    Addressing an annual conference of his ZANU-PF party, Mugabe (pictured) also warned that platinum miners, including the local unit of South Africa’s Implats Platinum, must build a refinery within two years or risk losing their licences.

    But Mugabe said the government would soon require producers to sell through the state-owned Fidelity company, a central bank firm which used to enjoy this monopoly.

    “We would want to centralise that. There is a lot of illicit dealing in gold, there is a lot of externalisation of earnings, and that has to stop,” he said.

    “To the miners, they should sell to Fidelity only.”

  14. Write to Congress to protest monetary metals market manipulation

    Our friend Kasey Warner of West Virginia wrote the other day to her
    members of Congress to ask them to investigate manipulation of the
    monetary metals markets, which is something that can be done by every
    U.S. citizen who is invested in the monetary metals or wants the
    restoration of free markets in the United States. With her permission
    the text of Kasey's letter is appended, and you're free to use it whole
    or adapt it.

    If you need help identifying your members of Congress or finding their
    postal addresses, visit the Project Vote Smart Internet site:

    Please write to members of Congress only by regular U.S. mail; few members of Congress pay any attention to unsolicited e-mail.

  15. Rigging Foreign Exchange Markets. Finance Capital’s “Control Fraud”

    It’s the world’s largest financial market. It trades around $5 trillion daily. It’s more than all global equity markets combined. It operates round-the-clock. It’s manipulated for profit.

    Grand theft reflects official Wall Street policy. Bankers make money the old-fashioned way.

    They do it through fraud, grand theft, market manipulation, front-running, misrepresentation, scamming investors, naked short selling, precious metals price suppression, controlling Washington, getting open-ended low or no interest rate bailouts when needed, and assuring world financial capitals are banker occupied territories.

    They do it artfully. Few people know what’s going on. Scandals rarely surface. Budding ones are usually buried. Little more than dust gets kicked up. Headlines disappear in short order.

    In June 2012, JPMorgan Chase CEO Jamie Dimon testified before the Senate Banking Committee. He discussed his firm’s trading losses at the time.

    It was more of a homecoming than grilling. Washington is Wall Street occupied territory. Regulators don’t regulate. Oversight is absent.

    Investigations rarely happen. Initiated ones are whitewashed. Criminal fraud is institutionalized. It’s encouraged, not curbed.

    Washington facilitates their lawlessness. It does it with business friendly legislation. It does it with similar executive orders. It does it by turning a blind to the worst of what goes one.

    Market rigging is longstanding practice. It’s part of the system. On March 18, 1989, Ronald Reagan’s Executive Order 12631 created the Working Group on Financial Markets (WGFM).

    Troubled giants get bailed out. Ordinary people get sold out. The process repeats as needed. A secret FDIC plan involves looting bank accounts.

    Depositor theft may follow. Doing so is called bail-ins. It’s code language for grand theft.

  16. The fact is that the Government uses gimmicks in order to move expenditures "off budget" in order to hide the truth by

  17. We'll never know if these really are the numbers.