The Debt Spiral

Our current federal deficit is accelerating like an avalanche. There are consequences for this policy.

For just the first two months of fiscal 2010 (Oct/Nov '09), this river of red ink exceeded $292 billion dollars. The CBO (Congressional Budget Office)'s dry monthly analysis presents a disturbing set of budget numbers that adds up to a Congress and administration resolutely increasing the rate of deficit spending.

Let's look at the base numbers for the combined Oct/Nov 2009 period (in billions of dollars).


Actual Oct/Nov '08
Preliminary Oct/Nov '09  
Estimated $ Change
Estimated % Change
Receipts
310
267
(42)*
(14)

Spending

590

559

(31)

(5)

Totals

(281)

(292)

(11)

(4)

Sources: Department of the Treasury, CBO.

*Rounding adjustment

A more critical analysis shows that our government is now spending $2.09 for every $1.00 of revenue. Any household or business with this unsustainable 2:1 spending-to-income ratio would be filing for bankruptcy.

Note that tax revenues are down $42 billion from last year. We can now justifiably ask, "So how successful was that stimulus package, Mr. President?"

The acceleration in deficit spending is actually much worse than these figures indicate. To quote from the CBO report:

In the first two months of fiscal year 2009, the federal government recorded $84 billion in spending for the Troubled Asset Relief Program (TARP) and for payments to Fannie Mae and Freddie Mac, but recorded only $2 billion for those purposes so far this year. Excluding spending for the TARP, Fannie Mae, and Freddie Mac, the deficit during the first two months of fiscal year 2010 was over $90 billion greater than the shortfall recorded during the same period last year.

Three times the CBO specifically highlights the TARP/Fannie/Freddie adjustment in its monthly report without showing an adjusted table. This is a very odd omission for such an important revision.

So let us reset the numbers ourselves with the TARP adjustment and see what shows up.

Base Numbers with CBO's TARP/Fannie/Freddie Adjustment -- Oct/Nov 2009 Period (in Billions of Dollars)



Actual Oct/Nov '08
Preliminary Oct/Nov '09         
Estimated $ Change

Estimated % Change

Receipts

310

267

(42)*

(14)

Spending

506

557

51

10

Totals

(196)

(290)

(94)

(48)

Sources: Department of the Treasury, CBO.

*Rounding adjustment

So a few items immediately pop out. "... over $90 billion" in CBO-speak is actually $94 billion. A nice $4 billion nuance.

The percentage change in deficit growth from '08 to '09 leaps from -4% all the way up to -48%.

The table includes two significant numbers that point to serious monetary peril in the coming year. The first is the whopping 10% increase (as compared to the 14% decrease in receipts) in federal spending during a time of deep financial uncertainty and an already obscenely bloated $12 trillion federal debt.

The second set of significant numbers start with the adjusted Actual Oct/Nov '08 percentage of Receipts to Spending, which is 61%. This means the federal government borrowed -- went into debt on -- $0.39 for every $1.00 spent.

Now let's look at the adjusted Actual Oct/Nov '09 percentage of Receipts to Spending is 48%. This means the federal government borrowed -- went into debt on -- $0.52 for every $1.00 spent. Let's digest this fact one more time.

Our federal government is now borrowing over half of its total spending.

In less than one year, the deficit rate rose from $0.39 to $0.52 for every dollar spent, a 33% increase. This accelerated rate of defect spending is unsustainable in any macroeconomic system.

We have in Washington a Democrat-controlled Congress and administration that are gleefully laying waste to two hundred and thirty-three years of American thrift and economic independence. We are becoming massively indebted, and therefore subordinated to, foreign creditors. Once caught in the debt trap, many important decisions affecting us all must meet with the approval of our creditors. This process has ruined many nations before us.

The corruption of common sense in federal spending and the grotesque growth of this deficit are beyond all reason and logic, as far as the national interest is concerned. We are collectively either ill-informed or in denial over the threat to this nation's economic security. The mainstream media refuses to do even the most basic reporting on the consequences of these staggering deficits.

Rational citizens with common-sense survival instincts must stand up now and stop this lemming-like charge into the abyss.

Lee DeCovnick was a Senior Financial Analyst for a Fortune 500 company in the era of Lotus 1-2-3, 5 ¼" floppy disks, and monochrome monitors. 
Our current federal deficit is accelerating like an avalanche. There are consequences for this policy.

For just the first two months of fiscal 2010 (Oct/Nov '09), this river of red ink exceeded $292 billion dollars. The CBO (Congressional Budget Office)'s dry monthly analysis presents a disturbing set of budget numbers that adds up to a Congress and administration resolutely increasing the rate of deficit spending.

Let's look at the base numbers for the combined Oct/Nov 2009 period (in billions of dollars).


Actual Oct/Nov '08
Preliminary Oct/Nov '09  
Estimated $ Change
Estimated % Change
Receipts
310
267
(42)*
(14)

Spending

590

559

(31)

(5)

Totals

(281)

(292)

(11)

(4)

Sources: Department of the Treasury, CBO.

*Rounding adjustment

A more critical analysis shows that our government is now spending $2.09 for every $1.00 of revenue. Any household or business with this unsustainable 2:1 spending-to-income ratio would be filing for bankruptcy.

Note that tax revenues are down $42 billion from last year. We can now justifiably ask, "So how successful was that stimulus package, Mr. President?"

The acceleration in deficit spending is actually much worse than these figures indicate. To quote from the CBO report:

In the first two months of fiscal year 2009, the federal government recorded $84 billion in spending for the Troubled Asset Relief Program (TARP) and for payments to Fannie Mae and Freddie Mac, but recorded only $2 billion for those purposes so far this year. Excluding spending for the TARP, Fannie Mae, and Freddie Mac, the deficit during the first two months of fiscal year 2010 was over $90 billion greater than the shortfall recorded during the same period last year.

Three times the CBO specifically highlights the TARP/Fannie/Freddie adjustment in its monthly report without showing an adjusted table. This is a very odd omission for such an important revision.

So let us reset the numbers ourselves with the TARP adjustment and see what shows up.

Base Numbers with CBO's TARP/Fannie/Freddie Adjustment -- Oct/Nov 2009 Period (in Billions of Dollars)



Actual Oct/Nov '08
Preliminary Oct/Nov '09         
Estimated $ Change

Estimated % Change

Receipts

310

267

(42)*

(14)

Spending

506

557

51

10

Totals

(196)

(290)

(94)

(48)

Sources: Department of the Treasury, CBO.

*Rounding adjustment

So a few items immediately pop out. "... over $90 billion" in CBO-speak is actually $94 billion. A nice $4 billion nuance.

The percentage change in deficit growth from '08 to '09 leaps from -4% all the way up to -48%.

The table includes two significant numbers that point to serious monetary peril in the coming year. The first is the whopping 10% increase (as compared to the 14% decrease in receipts) in federal spending during a time of deep financial uncertainty and an already obscenely bloated $12 trillion federal debt.

The second set of significant numbers start with the adjusted Actual Oct/Nov '08 percentage of Receipts to Spending, which is 61%. This means the federal government borrowed -- went into debt on -- $0.39 for every $1.00 spent.

Now let's look at the adjusted Actual Oct/Nov '09 percentage of Receipts to Spending is 48%. This means the federal government borrowed -- went into debt on -- $0.52 for every $1.00 spent. Let's digest this fact one more time.

Our federal government is now borrowing over half of its total spending.

In less than one year, the deficit rate rose from $0.39 to $0.52 for every dollar spent, a 33% increase. This accelerated rate of defect spending is unsustainable in any macroeconomic system.

We have in Washington a Democrat-controlled Congress and administration that are gleefully laying waste to two hundred and thirty-three years of American thrift and economic independence. We are becoming massively indebted, and therefore subordinated to, foreign creditors. Once caught in the debt trap, many important decisions affecting us all must meet with the approval of our creditors. This process has ruined many nations before us.

The corruption of common sense in federal spending and the grotesque growth of this deficit are beyond all reason and logic, as far as the national interest is concerned. We are collectively either ill-informed or in denial over the threat to this nation's economic security. The mainstream media refuses to do even the most basic reporting on the consequences of these staggering deficits.

Rational citizens with common-sense survival instincts must stand up now and stop this lemming-like charge into the abyss.

Lee DeCovnick was a Senior Financial Analyst for a Fortune 500 company in the era of Lotus 1-2-3, 5 ¼" floppy disks, and monochrome monitors.