5/14/2013 Daily US Cash Deficit

The US Daily Cash Deficit for 5/14/2013 was $3.4B bringing the May 2013 deficit through 14 days to $65B, actually $3B over 5/2013 through 14 days.

05-14-2013 USDD

Though not perfect, 2012 and 2013 are more or less aligned again…each having 10 business days M-F x 2. This is important because revenues are highly correlated with the day of the week….with Mondays being the highest in general. So…we have a bit of a surprise in revenue…actually showing a decline of $0.6B. looking in the details, we see tax deposits withheld are up $8B, or about 11%.. Refunds are also down $2B, for a total increase of about $10B. However, this is being offset by declines in unemployment deposits from the states, federal reserve earnings, other, and TARP. Outlays are up a bit, but there is a lot of movement….Social Security payments are up $2.5B, with two more payments to go this month.

Tomorrow brings a triple whammy. A $30B interest payment, the third round of Social Security at ~$12B, and some payroll for government employees paid on the 1st and 15th…the military in particular adding another $3B. All in, a $35B deficit looks quite possible, pushing us up to around $100B for the month.



CBO vs CBO Update

Back in March, I posted a piece I called Congressional Budget Office vs Citizens Budget office, or CBO vs. CBO. The premise was to compare the CBO’s 10 year forecast to my own rather primitive trend based forecast. In the end, I forecasted a 10 year deficit of $12.7T to the CBO’s $6.8T forecast, with the primary difference being revenues. To me, their revenue forecasts were wildly optimistic, predicting 11-12% YOY growth between 2013 and 2015, before tapering off to 5%-6% in the out years. I could buy 2013 at over 10% due to the tax hikes, but two more years of 10%?…not buying it.
While I didn’t post projections for specific years, after blowout revenues in April, and a rumored $59B “special” Fannie Mae payment in a few months….it is starting to look like round 1 (Year 1) is going to go to the experts at the CBO. At publication, I had pegged the FY 2013 deficit at $1006B vs the CBO’s forecast of $845B. While I haven’t done a full refresh of my forecast, I have tweaked it a bit, bumping up expected growth in withheld taxes to 12% from 10%, as well as made some downward adjustments to outlays to account for the sequester. With an additional 2 months of data in the bank, I now have the FY 2013 deficit forecasted at $866B….not including the rumored $59B from Fannie Mae. (regular payments from Fannie/Freddie are included) So if we back out the Fannie payment, $800B founds like a fairly reasonable preliminary forecast for FY 2013…..which would be a pretty decisive round one victory for the CBO.
Understanding my miss was pretty simple…I didn’t forecast the April Surge, I didn’t forecast the $59B Fannie Mae payment, and I was over a bit on outlays because I thought sequestration would be avoided or mitigated one way or another. Of course….there are still 5 months left..a lot of ball left to play, so who knows where we will end up.
As it turns out, the CBO has also revised their forecast…which is actually what prompted me to write this…I had planned on waiting until May actuals were in. Not content with coasting to a round one victory over their rival Citizens Budget Office….the CBO has actually revised down their deficit forecast even further from $845B to $642B. Do they know something I don’t? Well…let’s hope so, but I suspect it is actually something else.
The reduction is pretty evenly split…about $100B is increased revenue, and $100B is decreased outlays. The revenue I get…$59B from Fannie, plus an upward tweak to account for stronger than expected inflows for the remainder of the FY. Outlays however presents a different issue I suspect completely related to the impending debt limit fight.
First…some methodology review. My forecast of the deficit is strictly cash based….cash in, less cash out, adjusted for debt issuance and debt repayment. Changes in internal debt have no bearing on this calculation at all because as I have discussed at length, all it represents is cash taken from social security and other similar programs and already spent….pretending you owe yourself money does not affect cash.
Second, the cash deficit includes things almost certainly not included in the official deficit. the most prominent example is the post office. I’m not sure why, but all of the post office’s revenues and costs are run through treasury’s bank accounts, contributing about $88B in cash to the coffers in the last 12 months, about $7.3B per month. On the other side, we can see about $40B of outlays related to Postal Money Orders. So the post office ran a $48B surplus right??? Nope…employee costs, and probably other costs as well are lumped together with Federal Salaries, and elsewhere to (probably intentionally) muddy the water. More or less, it’s a wash, though with the PO, one would expect some cash deficit impact, nothing material to the Federal deficit. There are a handful of other smaller categories as well.
Still, despite the differences in methodology and accounting definitions, for FY 2012, the official deficit came in at $1089B compared to the cash deficit at $1092….suggesting that most of the items that affect cash, but are excluded from the official revenue and outlays are deficit neutral….cash inflows = cash outflows.
I am afraid that this correlation is about to get broken by the “extraordinary measures”…which may explain the desire of some to push the debt limit into early October…just into FY 2014. The effect will be to shift $100B of cost out of FY 2013…and into FY2014. Bottom line…it is more malarkey. Shifting $100B of cost from 2013 to 2014 and having Fannie Mae borrow $59B just to pay a large dividend based on phantom income very well may get the official deficit down to $642B in FY2013, but in all honesty it does absolutely nothing to the long term picture. That $100B will come right back at us in 2014, and Fannie, forced to issue $59B in debt, will contribute that much less to the treasury in the future those revenue streams will be diverted to interest and principal payments, or maybe even defaulted on.
Finally…just want to emphasize that this is exactly why I use the Daily Treasury Statement (DTS), and only the DTS in calculating the true (cash) deficit. Any other series provided by the government is at risk for accounting shenanigans….but the DTS absolutely has to tie out by every single business day at 3PM. Your beginning cash + cash in less cash out better equal your ending balance….and the changes in public debt better be pretty darn close to the debt to the penny…separately published every day (discounts and premiums on bonds cause small differences). Sure…shenanigans are theoretically possible, but they would have to be systematically accomplished in less than 24 hours….every single day in perpetuity. Anything is possible, but the risk of this series is materially less than any other government generated reports, as we are about to find out come the end of the FY when Obama trots out a bogus deficit of ~$650B..and proceeds to beat the Republicans with it.
**update** just a note that previous “extraordinary measures” were initiated and resolved in the same fiscal year….probably causing shifts between months, but not between FY. This time….though anything could happen, it seems like with the FY ending 9/30, putting off resolution until October would result in a ~$100B shift from FY 2013 to FY 2014. Of course, we don’t know when this will actually be resolved. it could be tomorrow, or it could drag on well into FY 2014 (but I doubt it)

5/13/2013 Daily US Cash Deficit

The US Cash Surplus for Monday 5/13/2013 was $2.3B nudging the monthly deficit down a smidge to $61B.

05-13-2013 USDD

May 2013 and May 2012 are still more or less lining up fairly well…I suspect a lot of the apparent $8B revenue increase will go away with tomorrows report. We should get some moderate inflows from excise taxes and corporate taxes over the next few days in addition to the large interest payment outlays….once all that flows through, say by next Wednesday, we should have a much better feel for where we end up.
On the debt front, total debt sits at $16.755T ($73B under the 4/30 ending balance) with 4 more business days to go before the debt limit deal expires, locking in the debt limit at wherever it stands. Cash in hand is now $95B….a little light if you ask me…at least if the goal is to make it all the way to October. On the other hand, I don’t understand the desire to push it out that far anyway…In the big scheme of things, a month or two is irrelevant, and moving debt off balance sheet for a few months via “extraordinary measures”only to bring it all back on when the next deal is reached just seems like a silly and pointless game. If it were me….I say get both parties into the ring…duke it out, and have it all wrapped up in time for summer vacation at the end of May.
I haven’t seen any additional headlines related to the $59B Fannie Mae phantom profits…that would definitely help the situation a bit…stay tuned!!

Explaining April 2013’s Revenue “Surge”

I’ve been digging into the April “Surge” in revenues, and while unfortunately we won’t know if I am right until next April, here is my working thesis….
I probably said it a dozen times during April….the surge was primarily in the category “Tax deposits not withheld”, and this is likely the key to understanding what happened. I don’t have the numbers in front of me to prove this, but I think it is a pretty safe assumption that most of these tax deposits are made by the wealthy…let’s say top 5%. Most of the population…myself included, pay almost all our taxes through payroll withholding. Throughout the year, using IRS tables and information provided by the employee, a certain amount is withheld by the employer for FICA and income taxes. Then, after the year end, you plug your actuals into turbo tax, and probably get a refund of a few thousand bucks. These fall into “taxes withheld”…obviously because they are withheld by your employer and remitted to Uncle Sam on your behalf.
Taxes not withheld are a completely different animal. Say you own a small business, or daytrade, or own some timberland. You don’t have an employer to withhold your taxes….in fact, depending on your quarter, maybe you have a ton of income, or no income at all. So…your accountant will instead, about every quarter take a look at your books, and send enough $ to Uncle Sam to keep him off of your back until the next quarter. In one quarter, maybe you sell $1M of timber that took 30 years to grow….your accountant better send in a few hundred thousand. Unless…that is you had some day trades go bad, and also lost $500k.
So  back to my hypothesis. There was a lot of speculation running up to the end of 2012 that people would be making a lot of year end tax moves to shift income into 2012 before tax rates went up in 2013. There are a lot of ways to do this, but the simplest one looks to me like the capital gains tax…which went from 15% to 23.8% (includes a new medicare surcharge of 3.8%) for those making over $400k per year.
So imagine you fall into this category, and had purchased a lot of stocks near the bottoms in 2009. It is near the end of 2012, and those gains of ~100% or so are sitting on your books…untaxed. Taxes are going to jump from 15% to 23.8% in a few days…what do you do? Simple….you sell them all…take your 15% lump….realizing that’s the best it’s probably ever going to get, and it could very well get a lot worse from here… You set aside enough to pay your taxes…then the very next day, if you are so inclined, you buy them all back.
Thus….you recognize all of your gains to date in 2012 at the 15% rate, and establish a new basis in your stocks at much higher 2012 prices. Then, as April 2013 rolls around, your accountant sends a very large check to Uncle Sam, who books it as Tax Deposits not withheld. YOY, we saw this category increase by about $56B…let’s divide that by the rate-15%, and we can see that perhaps as much as $375B of capital gains were taken in Q4-2012 to take advantage of the expiring 15% rates.
Obviously, this resulted in a blowout month.. good for us.. (bad for my forecasting record) But, if this is indeed what happened, we should then be extremely cautious about working this one month anomaly into our 10 year forecast because not only will it not repeat itself, we could actually witness a decline in revenues next year (April)…not cool if you were expecting exponential growth in the 11-12% range like the CBO.
So for now, it’s just a matter of sitting back and watching the daily numbers roll in. June and September are the next two months with material “not withheld” revenues…each should be in the $60B range, compared to April’s $196B. What we are looking for is YOY growth. 10-15% or so would be more or less in line with a surging stock market and higher tax rates. Anything close to the 40% YOY growth we saw in April would send me back to the drawing board, and possibly making some large revisions to my own 10 year forecast.

5/10/2013 Daily US Cash Deficit

The US Cash Deficit for Friday 5/10/2013 was $4.3B bringing the May deficit through 10 days to $63B. May 2013 vs 2012 still look more or less the same on all fronts, though some of this is timing related. We’ll get another more or less synchronized snapshot this Wednesday, then on Thursday we get to see a ~30B interest payment and some corporate taxes…small, but worth taking a look at.

2013-05-10 USDD