Sunday, October 17, 2010

The United States Deficit - Dodged a bullet this time?

On Friday, the United States Treasury Department released its statistics for the fiscal 2010 which ended on September 30th 2010.  Treasury Department calculations show that the gap between what the government took in and what they spent amounted to $1.294 trillion, which amounts to 8.9 percent of gross domestic product.  If we look back at fiscal 2009, the budget deficit set a new record of $1.416 trillion, a massive 10 percent of GDP.  This year's numbers put the 2010 deficit in a very close second place.

Believe it or not, this is good news in two ways.  First, back in July, the White House predicted that the fiscal 2010 budget deficit would reach $1.47 trillion.  Dodged that bullet, didn't we?  Second, spending cutbacks and revenue increases managed to shrink last year's $1.416 trillion deficit by $122 billion, a whopping 8.6 percent year over year.  At least the Obama administration can be thankful that they didn't set yet another deficit record, two years running.

Let's take a brief look at the numbers as shown on this table:

For fiscal 2010, the government took in $2.162 trillion, a $57 billion increase over fiscal 2009.  This can be attributed to higher corporation income tax receipts ($191 billion) and receipts from the Federal Reserve, however, these increases were partly offset by lower individual income ($899 billion) and payroll tax receipts, likely due to the stubbornly high 14.8 million unemployed Americans.  Government spending, on the other hand, declined to $3.456 trillion, a drop of $64 billion (or 1.8 percent) from the $3.520 trillion spent in fiscal 2009.  As a percentage of GDP, expenditures dropped from 25 percent to 23.8 percent; apparently, this is the fastest year over year decrease in government expenditures since 1984.

I found the closing sentence of the first section of the press release interesting:

"Federal borrowing from the public, net of financial assets, increased by $1.294 trillion during FY 2010 to $8.004 trillion, or 55.1 percent of GDP"

As I've said before, it's like putting lipstick on a pig; it may look prettier but it's still a pig.  From the government's own TreasuryDirect website, the public debt outstanding stood at $13,561,623,030,891.79.  Yes, it looks much more palatable to offset debt with assets, but the debt still stands until the assets are sold, if indeed they are marketable.

As expected, the Obama administration is blaming the elevated deficit on "the severe economic recession, high unemployment and the financial crisis that were inherited by the current Administration.".  It's hard to argue the point, but two years in, you'd like to think that the "new" Administration should at least shoulder some of the blame for the situation.

What is particularly frightening about the United States debt situation is the growing interest on the debt. Here's a screen capture from the TreasuryDirect website showing the interest on the debt for fiscal 2010 as well as historical data back to 1988:

Note that interest payments on the public debt were $413.95 billion for fiscal 2010, up nearly $21 billion from 2009.  Looking back to 1988, interest payments on the debt have nearly doubled from $214 billion.  To put the $413.94 billion number into perspective, according to the IMF, only 21 countries in the world had GDP levels that were higher than the annual interest payments on the American public debt.  Surprisingly, those that fall below the $413.95 billion number included Sweden, Taiwan, Saudi Arabia, Austria and Norway (think big oil).  If we were magically able to remove the debt repayments from annual government expenditures, the deficit will still remain at $880 billion, still far from a comfortable level and it would still remain as the third largest deficit in history.

Let's take one last look at the historical debt over the past 11 years from the TreasuryDirect website:

and the growth of debt from 1953 to 1999:

Here's a quick summary of public debt data on some key dates in American history.

January 19th, 2001 - public debt was $5,727,776,738,304.64
January 16th, 2009 - public debt was $10,628,881,485,510.23
Growth of debt between dates - $4.901 trillion or 85.6 percent

January 20th, 2009 - public debt was $10,626,877,048,913.08
October 15th, 2010 - public debt was $13,606,947,094,101.90
Growth of debt between dates - $2.98001 trillion or 28 percent.

In case you don't recognize the dates, January 19th, 2001 is the closest business date to the inauguration of George W. Bush and January 16th, 2009 is the last business day that he was in office.  January 20th, 2009 was Barak Obama's inauguration date and October 15th, 2010 was the last business day before this posting.  It is interesting to see just how much the public debt has grown over just 21 short months, isn't it?

The release of the deficit statistics for fiscal 2010 should give us pause to, yet again, reconsider the direction our world is headed.  We are leaving nothing but the prospect of fiscal misery for future generations.  Despite recent partisan wrangling in the media, between politicians and amongst the electorate over "big government", it would appear that neither of the last two administrations have anything to brag about when it comes to fiscal prudence.  Heaven help us all should interest rates return to historical norms and we experience ballooning interest payments on an ever-growing mountain of public debt.  It will be just like the "sweaty masses" and their ballooning ARM mortgages and we all know how that movie ended. 


  1. On the upside (this story is too depressing and I had to find SOMETHING good), I'm amazed the Treasury Board was able to publish these statistics so quickly. The year end wasn't even a month ago! Also, I love the fact that they include pennies, even with such large numbers.

  2. It's clear that the system has failed.
    What is to replace it ; I'm damned if I know.
    There are those,at all levels of Government, that propose deregulation of everything from environmnetal standards to building codes.
    We live in dangerous times.

  3. I also agree that the US debt is a significant risk factor to America and the world economic system and needs to be seriously addressed.

    Increased economic growth (ie increased taxes) has never been sufficient to remove the debt in past administrations of either color, so spending has to be addressed.

    imo basic entitlements cannot be much reduced - they are already among the lowest in the developed world and any large reduction basically means that usa civilization has gone.

    There are 2 places where reductions can be made:
    American health care costs ~2x more than most other western countries and by most measures it is the worst of all these countries. Instituting a lean and efficient nationalized system could halve health care costs. Spending on the military should also be gradually reduced, even if later on some of it is increased. Exiting afganistan is probably a good start but more will still need to done. imo military spending is now breaking the USA as it did the Soviet Union.

  4. I couldn't agree more. I have a posting on the military expenditures coming up.

  5. It's noticeable that the highest % increases come under Reagan/Bush Snr and then Bush Jnr again.
    How do these people get away with claiming they are in favour of a smaller govt?
    I imagine nearly all of the problem stems from increased military spending and decreased tax revenue.
    (From the UK.)