US February 2013 Cash Deficit Review: Part 1

Another month has come and gone. We are all now 28 days closer to death….whenever that will be. We are 28 days closer to the day our star, the sun, runs out of hydrogen, begins it’s transition to a red giant, and ultimately cooks the earth into crunchy black char ball before destroying it altogether. And… perhaps even more ominously… we are 28 days closer to the day the US government begins defaulting on its on and off balance sheet liabilities. For all of these certain future events, we can’t predict  the exact date they will occur….but we do know with absolute precision that we are one month closer to the day of reckoning than we were a month ago.
But enough gloom and doom, let’s crunch the numbers and see what happened in February and what it means for the big picture. As we have discussed in prior posts, February is almost always the worst month of the year for deficits, even back in the good ol’ days like 2000 when we kinda sorta actually had an annual surplus…depending on what kind of accounting you used (shady vs. shadier??) So we came in at $229B…a bit under last year, but right in line with the last 5 years. Clearly what little improvement we have is immaterial…a mere 8% improvement, and there is a good chance most of that is related to delayed tax refunds.
022013 Deficit vs py
The biggest deficit related news in the last few months may have been the President’s tax hikes…namely about $60B per year on the wealthy…and about $120B per year on those of us who pay payroll tax. So let’s take a look at revenues by category with this screenshot from excel. You may recall that 2/2013 revenue was $95B vs. $80B last year. I need to clarify that this is “net” revenues….We take all revenues from the sources listed below, then subtract tax refunds to get net revenues. Since February is especially heavy in refunds, the net is always much lower than other months, but we apply it consistently, and I am much more comfortable with this accounting approach.

022013 Revenues by Source

 In yellow I have highlighted some of the more interesting sources of revenue. Federal reserve earnings are down almost $3B…this is a bit odd and I will definitely be keeping an eye on this. Federal reserve “earnings” primarily consist of them printing money, and using it to lend money to the federal government by purchasing bonds. Then, the treasury sends the Federal reserve interest payments…and the federal reserve turns around and sends that…less their costs…back to the treasury? Sounds kind of shady huh? You bet your a** it is. Moving on “FTD’s” (’s not what you are thinking)…Federal Tax Deposits is the governments primary revenue stream….made up mostly of  taxes (income and payroll) withheld from your paycheck and sent in to Uncle Sam. They are up, but only $7.5B…we’re expecting ~$15B per year thanks to the recent tax hikes. It could just be the extra day in February 2012, but I’m not entirely convinced this is the case.
Next we see that “Other” deposits….are down $7B, but that deposits from TARP are up almost 500%. You may recall Tarp from years ago…where our government lent hundreds of billions of dollars of public money to all their donors, buddies ect… at below market rates. As those loans are repaid…and a good chunk of them were…the money comes back in as revenue. It’s not perfect, but as an Uncertified Public Accountant, it still gets my stamp of approval. For more information on this, take a look at “We Won’t Miss TARP, But Uncle Sam Will”. Finally, we get to the big number…Individual Tax refunds were down year over year by $15B, presumably because of the tax filing being pushed back a week or two and subsequent processing delays. If we back this out, then what we have for the month is a small increase in FTD’s offset by small decreases elsewhere for flat YOY revenue…despite tax increases….that’s not a good sign, but one month does not make a trend…lets see how March turns out before we turn on the recession alarms..ok maybe April.
Ok guys…this is getting long, so i’m going to split it in half and do the spending and debt analysis tomorrow. If you were wondering about the 3/1 daily deficit…it was a whopping $53.5B….I’m going to hold off a day or two for the charts because the timing is making the year on year charts go nuts so it doesn’t really make sense yet.

2/28/2013 Daily US Cash Deficit

The US Daily Cash Deficit for 2/28/2013 was $8.6B bringing the February 2013 deficit to $229B, a $20B improvement over February 2012. This was fairly close to my guestimate of $225B, so nothing really unexpected here, but I will note that total revenues unadjusted for refunds were flat after a 9% year on year (YOY) increase in January. There were increases in taxes withheld of about 5%, but this was offset by reductions elsewhere. Now part of this is likely due to the extra business day last year, which is also likely the cause in a slight reduction in YOY outlays, but it is still a surprise to me because I expected the tax increases to more than make up for the lost business day, but that clearly was not the case. Of the $15B revenue increase we see in the charts below, every cent of it can be attributed to a delay in refunds, which were down $15B from $129B last year to $114B in 2013. Now, it is entirely possible that tax refunds will just be less in 2013, that would not be unprecedented. But if not, we should see these in March and April. The cumulative difference through 2 months is about $23B, so we will continue to keep an eye on that.
I will do a larger recap over the weekend, but wanted to get this out today. Looking forward to March, last year we ran a $139B deficit, which sounds like a pretty good estimate to me. That assumes this month’s flat revenues were a fluke and that we will see revenue gains in the $15B range…offset by about $15B increase in tax refunds as the IRS catches up with the delays we have seen to date. Not expecting any sequester effect….is that still happening??…but I will keep an eye out for it.

2013-02-28 USDD

Mayor Bloomberg: “people do seem willing to lend us an infinite amount of money”

I just read this at politicker about some interesting comments by New York’s Mayor Bloomberg. He, like pretty much all of the elites seem to be under the impression that the US government can in fact borrow an infinite amount of money. If you believe in fairy tales…just like the Mayor, well, then I would encourage you keep loaning Uncle Sam Money at near zero rates. Get back to me in 10 years and let me know how that works out for you.
About a month ago in “Uncle Madoff’s Trust Fund” I wrote:
“It never ceases to amaze me that we as a nation trust our government, run by universally despised politicians with our personal wellbeing in retirement.”
I think the same needs to be said about US debt. Since my days in college, I can remember being told over and over by professor after professor…. the market assumes that US debt is risk free. This is a fundamental assumption for modern economics and finance….but let’s think about how moronic that is. Who is the US government? It is us…only led by a bunch of morons who can’t even write or pass a budget, much less balance one. The number of budget surplus’s our nation has produced in it’s history could probably be counted on  one hand…for those of us that can count that high. The current debt outstanding, fast approaching $17T, is about $50k per man woman and child. So…take a quick look around and ask yourself…who would you be willing to loan $50k to? Yeah…that’s what I thought. kind of scary huh?
So when you purchase that 10 year “risk free” bond paying 2%…just think about who you are counting on to pay it back in ten years….whatever yokel your fellow citizens have decided is the least biggest moron…or perhaps who will give them the most free stuff….that’s the guy, that’s the congress, that’s the Treasury Secretary you are counting on to return your $100 and change when 2023 rolls around. If you are just cashing in the bond you purchased back in 2002, you may noticed that things have changed a bit. That $100 bill only buys 1/3 of the oil it or 1/4 of the metals it did when you bought it. Of course the official inflation numbers were only like 2% a year, but who are you going to believe, Uncle Sam or your lying eyes? If that pattern continues, in ten years that nice crisp $100 treasury secretary Krugman pays you back with is going to be a rather uncomfortable piece of toilet paper.
So when will we stop believing in fairy tales? I’m not holding my breath.

2/27/2013 Daily US Cash Deficit

The US Daily Cash Deficit for 2/27/2013 was $23.6B bringing the February deficit to $220B with one day to go. Primary drivers for the rather large daily deficit was the last Social Security EFT of the month at $11.7B and $14.2B of refunds. 2/2012, with one additional business day ended up at $249B, and it seems unlikely that mark will be broken in 2013 thanks to an increase in tax revenues, mostly flat outlays, and a slowdown in tax refunds.

2013-02-27 USDD