Deficit Spending Numbers
01-14-2009, 07:26 PM
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Deficit Spending Numbers
Martin Weiss writes: The government has just released one of the most shocking federal budget reports of all time.
Even if you overlook the gaping holes in their economic assumptions, it's obvious the federal deficit is going to deliver a punch below the belt of the economy.
And once you unveil the shaky assumptions, it's equally obvious the deficit could be the last nail in its coffin.
First, Look at the Government's Own Shocking Numbers!
The Congressional Budget Office (CBO) estimates that
The 2009 federal deficit will be $1.186 trillion! Even after adjusting for inflation, that's more than the combined cost of the Vietnam War ($698 billion) and the Korean War ($454 billion) 4.6 times more than the entire S&L bailout of the 1980s and 5.5 times larger than the Louisiana Purchase:
In sheer dollars, the 2009 federal deficit will shatter every record deficit of every nation in history.
Even in proportion to the larger U.S. economy, the 2009 deficit will represent 8.6% of GDP more than four times the average under Bush, nearly seven times the average under Clinton, and 1.4 times the post-World War II record of 6% under Reagan.
After you factor in the additional deficit spending and tax cuts proposed in the Obama stimulus package, the deficit will surge to 10% of GDP.
Federal spending will reach 25% of GDP the highest level in American history outside of World War II. But during World War II, most of the money was spent on war-related production, creating entire new industries and keeping millions of Americans in uniform or on the job. In contrast, most of the 2009 deficit spending will be for corporate bailouts, unemployment benefits, Social Security and Medicare.
Already, in the first quarter of fiscal 2009, the federal deficit has ballooned to $485 billion, an unprecedented increase of 353% compared to the previous year. If it continues to grow at that pace, it will make all the above estimates look small by comparison.
This is not a fictional scenario conjured up by a gloomy economists with a murky crystal ball. Nor does it represent a third-party diatribe against Democrats and Republicans. It accurately represents the actual numbers just released by the nonpartisan CBO on January 8.
Second, Take a Closer Look At Their Assumptions!
Beyond the traditional budgetary smoke and mirrors, here are just some of the holes in their estimates:
1. The CBO implicitly assumes that the debt crisis is largely behind us no more big bank failures, no more GMs or Chryslers, no more international debt defaults and no Wall Street meltdown. But the very size of its own deficit projection reaching 10% of GDP makes that assumption highly questionable.
2. The CBO assumes that federal revenues will remain relatively stable at 17.6% of GDP, only slightly below the 18.3% historical average. That means there can be no depression, no unemployment disaster, no tsunami of corporate red ink and no plunge in federal tax revenues.
Just make believe those events can never happen! goes the rationale.
What about the government data showing that the unemployment disaster is already here? Largely ignore that, too, seems to be the underlying theme.
3. The CBO assumes that the economy will recover after 2009, and the government will get most of its bailout money back. For the TARP program, for example, the assumption is that the cost will be only 25% of the total amount loaned or invested. The remaining 75%, it figures, will be paid or earned back.
In theory, perhaps. In practice, current trends show that the only realistic hope the government might have of recouping its original investment is by providing even more bailout money to sustain the companies it already has on life support.
At Fannie Mae and Freddie Mac, for example, portfolio losses are far larger than anticipated when they were first bailed out last year.
Reason: Prime mortgages, which make up the bulk of their portfolios, are now defaulting at much higher-than-expected rates.
At Citigroup, the government has committed to an additional $20 billion on top of the initial $25 billion the bank received initially. Plus, Citigroup also has received a government backstop for up to $306 billion in loans and securities backed by mortgages. But here, too, the government's liabilities and losses are bound to be larger than anticipated.
Reason: The bank's portfolio is stuffed with home mortgages, credit cards and other consumer loans that are highly exposed to surging unemployment.
We see the same pattern at AIG, General Motors, Chrysler and nearly every major corporation the federal government has bailed out so far: More good money after bad!
Ultimately, the government will either have to write off most of its bailout investments or wind up nationalizing the companies, draining more taxpayer money for a longer period of time.
Third, Consider the Inevitable Consequences!
Based strictly on the official estimates of the 2009 deficit, any economist not on drugs must conclude that, in the coming months and years
The federal government will have to borrow more money than at any time in history
To raise that money, it will have to shove aside individuals, businesses, local governments and virtually all other borrowers, scooping up most of the funds available in the already-tight credit markets
By crowding out other borrowers, it will sabotage its own efforts now underway to restore private credit markets
It will put great upward pressure on interest rates and ironically
It could bring on a new, more virulent debt crisis that deepens and prolongs the economic decline.
Fourth, Don't Forget the Big Impact This Can Have on You!
The official budget estimates are sending you the same message I've been giving you: You must brace yourself for America's Second Great Depression.
Any saver or investor who does NOT take protective action could be making a fatal mistake.
My recommendations are unchanged:
Recommendation #1. Keep as much as your money as safe and as short term as possible.
Recommendation #2. Despite the low yield, I recommend short-term U.S. Treasury securities for up to 90% of your money.
Recommendation #3. Despite apparent bargains now available in stocks and real estate, use any rally or recovery to get out of BOTH as fast as you can.
Recommendation #4. Don't dump your assets at any price. Sell in a deliberate, disciplined pattern. But do not delay! The time to move to safety is right now .
Recommendation #5. Learn how to build up an alternative source of profits and income.
Good luck and God bless!
Martin
Even if you overlook the gaping holes in their economic assumptions, it's obvious the federal deficit is going to deliver a punch below the belt of the economy.
And once you unveil the shaky assumptions, it's equally obvious the deficit could be the last nail in its coffin.
First, Look at the Government's Own Shocking Numbers!
The Congressional Budget Office (CBO) estimates that
The 2009 federal deficit will be $1.186 trillion! Even after adjusting for inflation, that's more than the combined cost of the Vietnam War ($698 billion) and the Korean War ($454 billion) 4.6 times more than the entire S&L bailout of the 1980s and 5.5 times larger than the Louisiana Purchase:
In sheer dollars, the 2009 federal deficit will shatter every record deficit of every nation in history.
Even in proportion to the larger U.S. economy, the 2009 deficit will represent 8.6% of GDP more than four times the average under Bush, nearly seven times the average under Clinton, and 1.4 times the post-World War II record of 6% under Reagan.
After you factor in the additional deficit spending and tax cuts proposed in the Obama stimulus package, the deficit will surge to 10% of GDP.
Federal spending will reach 25% of GDP the highest level in American history outside of World War II. But during World War II, most of the money was spent on war-related production, creating entire new industries and keeping millions of Americans in uniform or on the job. In contrast, most of the 2009 deficit spending will be for corporate bailouts, unemployment benefits, Social Security and Medicare.
Already, in the first quarter of fiscal 2009, the federal deficit has ballooned to $485 billion, an unprecedented increase of 353% compared to the previous year. If it continues to grow at that pace, it will make all the above estimates look small by comparison.
This is not a fictional scenario conjured up by a gloomy economists with a murky crystal ball. Nor does it represent a third-party diatribe against Democrats and Republicans. It accurately represents the actual numbers just released by the nonpartisan CBO on January 8.
Second, Take a Closer Look At Their Assumptions!
Beyond the traditional budgetary smoke and mirrors, here are just some of the holes in their estimates:
1. The CBO implicitly assumes that the debt crisis is largely behind us no more big bank failures, no more GMs or Chryslers, no more international debt defaults and no Wall Street meltdown. But the very size of its own deficit projection reaching 10% of GDP makes that assumption highly questionable.
2. The CBO assumes that federal revenues will remain relatively stable at 17.6% of GDP, only slightly below the 18.3% historical average. That means there can be no depression, no unemployment disaster, no tsunami of corporate red ink and no plunge in federal tax revenues.
Just make believe those events can never happen! goes the rationale.
What about the government data showing that the unemployment disaster is already here? Largely ignore that, too, seems to be the underlying theme.
3. The CBO assumes that the economy will recover after 2009, and the government will get most of its bailout money back. For the TARP program, for example, the assumption is that the cost will be only 25% of the total amount loaned or invested. The remaining 75%, it figures, will be paid or earned back.
In theory, perhaps. In practice, current trends show that the only realistic hope the government might have of recouping its original investment is by providing even more bailout money to sustain the companies it already has on life support.
At Fannie Mae and Freddie Mac, for example, portfolio losses are far larger than anticipated when they were first bailed out last year.
Reason: Prime mortgages, which make up the bulk of their portfolios, are now defaulting at much higher-than-expected rates.
At Citigroup, the government has committed to an additional $20 billion on top of the initial $25 billion the bank received initially. Plus, Citigroup also has received a government backstop for up to $306 billion in loans and securities backed by mortgages. But here, too, the government's liabilities and losses are bound to be larger than anticipated.
Reason: The bank's portfolio is stuffed with home mortgages, credit cards and other consumer loans that are highly exposed to surging unemployment.
We see the same pattern at AIG, General Motors, Chrysler and nearly every major corporation the federal government has bailed out so far: More good money after bad!
Ultimately, the government will either have to write off most of its bailout investments or wind up nationalizing the companies, draining more taxpayer money for a longer period of time.
Third, Consider the Inevitable Consequences!
Based strictly on the official estimates of the 2009 deficit, any economist not on drugs must conclude that, in the coming months and years
The federal government will have to borrow more money than at any time in history
To raise that money, it will have to shove aside individuals, businesses, local governments and virtually all other borrowers, scooping up most of the funds available in the already-tight credit markets
By crowding out other borrowers, it will sabotage its own efforts now underway to restore private credit markets
It will put great upward pressure on interest rates and ironically
It could bring on a new, more virulent debt crisis that deepens and prolongs the economic decline.
Fourth, Don't Forget the Big Impact This Can Have on You!
The official budget estimates are sending you the same message I've been giving you: You must brace yourself for America's Second Great Depression.
Any saver or investor who does NOT take protective action could be making a fatal mistake.
My recommendations are unchanged:
Recommendation #1. Keep as much as your money as safe and as short term as possible.
Recommendation #2. Despite the low yield, I recommend short-term U.S. Treasury securities for up to 90% of your money.
Recommendation #3. Despite apparent bargains now available in stocks and real estate, use any rally or recovery to get out of BOTH as fast as you can.
Recommendation #4. Don't dump your assets at any price. Sell in a deliberate, disciplined pattern. But do not delay! The time to move to safety is right now .
Recommendation #5. Learn how to build up an alternative source of profits and income.
Good luck and God bless!
Martin
01-15-2009, 03:44 AM
#3
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Joined APC: May 2006
Position: ATP, CFI etc.
Posts: 6,056
I am no money expert but contrary to what this guy is saying, the idea of selling low- as you would now- is against the age old principle of buying low and selling high. I plan to hold onto my rapid growth stocks even though they have just about become sawdust. I am staying in the high risk high market because I already took the hit and many of these companies are still viable and fairly strong. My purchase rate will go way up on these stocks, they have become a bargain, and in several years they will be a gold mine again. If I had been Merlin to seen all the devaluation that came I would have bought currency ETFs and World Currency Options to take advantage of the strong dollar. Too late, so might as well wait for the next surge to arrive rather than stuff money under the mattress. What's more, if everyone takes their cash out of the market it only serves to prolong the recession.
Last edited by Cubdriver; 01-15-2009 at 03:49 AM.
01-15-2009, 10:18 AM
#4
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Joined APC: Feb 2007
Posts: 105
Originally Posted by Cubdriver
I am no money expert but contrary to what this guy is saying, the idea of selling low- as you would now- is against the age old principle of buying low and selling high.
01-15-2009, 01:28 PM
#6
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Joined APC: Feb 2007
Posts: 105
Originally Posted by jungle
Recommendation #2. Despite the low yield, I recommend short-term U.S. Treasury securities for up to 90% of your money.
01-15-2009, 01:46 PM
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Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
Originally Posted by RXS676
It seems to me the excessive national debt will result in either default or printing money/hyperinflation. Isn't having 90% of your assets in treasurys risky? Why not precious metals, foreign currency or some other asset that will preserve (if not grow) the purchasing power of your money?
They can't print more money until they float more debt, their ability to sell debt at 0% interest is probably coming to an end shortly. An excellent company such as FEDEX has to pay 8% to buy money. The Fed is out of ammo. I think the writer views many large banks as a higher risk proposition than short term treasuries. Even though many financial institutions are trading well below book value, there are still questions about those books.
Precious metals are already pumped up, foreign currencies and debt are worse than ours. Perhaps some commodity plays would be the way to go?
The writer is looking for a deflationary scenario, much like the last 15 years or so in Japan. Who knows, it is hard to find any bullish opinions, which may be a good sign.
01-16-2009, 08:45 AM
#8
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Posts: 105
Originally Posted by jungle
They can't print more money until they float more debt, their ability to sell debt at 0% interest is probably coming to an end shortly.
01-16-2009, 12:24 PM
#9
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Still not "out of thin air", but a debt they have promised to pay with your tax dollars in the future. They still sell this debt on the market in the form of treasuries. Taxpayers are also responsible for the interest, which should be about 600 billion a year on the outstanding debt of 12+ trillion.
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