US Daily Cash Deficit 12/20/2013-Freddie Mac Payday Loan

The US Daily Cash Deficit for Friday 12/20/2013 was $3.6B bringing the December 2013 surplus through 20 days to $13B with 6 business days remaining.

12-20-2013 USDD

Revenues take a big hit today…$-7B vs last year…now down $11B YOY…almost 5%. While most of that can be attributed to a $6B TARP repayment received last year…that’s not really a surprise. Excluding TARP…tax deposits are just about flat at +1%…including corporate taxes which are up 3%.

So…while December is looking like a pretty miserable month on the revenue side…I just stumbled upon a nice little news story from back in November that looks like it will save the day. Over at The Street they reported that Freddie will be making a $30B payment to treasury. This is pretty much identical to what happened with Fannie Mae back in June as I documented here. Accountants at Freddie wrote back up previously written off tax assets…creating an accounting gain of $24B. Then…they go out and get a $24B loan….and use that to pay uncle Sam his due. Sounds great right??

Well…you see the thing is…Freddie is essentially a government owned entity….and since these fictitious “tax assets” only value is in reducing future taxes owed….the entire thing is essentially a huge circle j***. The US government is using Freddie and Fannie to get a payday loan….in this case cashing out $24B today….but reducing future revenues by the same…plus whatever interest Freddie has to pay…

At risk of putting some to sleep, I feel a need to proceed. Let’s just say in a given quarter Fannie and Freddie together post a $10B  before tax profit….which they are obligated to turn over to treasury per the bailout terms. Now…if they were a normal corporation….they would pay about 35% of income tax….$3.5B…then the remaining $6.5B would then be turned over to Treasury (as the owner). Net to treasury….$10B. Now….let’s let them use their pretend tax assets to reduce income tax to zero. They still have $10B but no income tax….so all $10B is handed over to treasury. So…Treasury gets $10B regardless of what kind of nonsense the accountants come up with. However…now Freddie has an additional $24B of completely unsecured debt on it’s books. The interest on that…though probably not much, will directly reduce future earnings handed over to the treasury….and of course…the debt itself will ultimately have to be repaid. Even if Treasury ever sells Freddie, or lets it go public again….the entities value to a suitor has been reduced directly by the $24B of cash pulled out….a haul old school corporate raider Mitt Romney could only ever dream about.

So…the net impact of all this is that the December Surplus will be $24B higher than it otherwise would have been….and future deficits will be $24B+ or so higher. To my knowledge…the Fannie/Freddie bag-o-tricks is now just about empty… after buying us a whole…maybe 2 weeks of time. Yep…we’re still doomed 🙂

Cutting Military Pensions-So Soon??

I just read Military retirees: You betrayed us, Congress over at, an article about a provision in the latest budget deal that reduces the annual cost of living adjustment for military pensions. It may not sound like a big deal, and in the big picture, it isn’t, but for an individual who had been promised, lets just say a $30k per year pension in exchange for putting their life on the line defending the country, the net result could be up to a 20% reduction down to $24k per year. So….you can imagine….a 42 year old who joined the military as an officer at 22 and just retired….might be kind of pissed about this….though I think the way it works is a 1% reduction in the COLA per year maybe until they hit 62 or something….(adding up to 20%)so it wouldn’t actually be a $6k hit in year 1…..just a gradual reduction of promised benefits over a 20 year period.

Hmmm…. Now…I’ve been saying since I started this blog over a year ago….that in the future…on and off balance sheet debts would be defaulted on at some point, so I’m not really shocked at this. This is after all a default, even if it’s just a small%. It’s just as if a company sold a 30 year bond for $1M….and then 30 years later when the bond was due…decided to only pay $800k instead of the full $1M….it’s a partial default, but a default nonetheless. So…I must say that while I’m not shocked that it happened, I am shocked that this is where they start. Seriously…military pensions going to men who have served for a minimum of 20 years? These are the guys you are putting first in line? Wow!!I figured for sure that SS and Medicaid, food stamps, foreign aid…..a thousand things would get cut before they started defaulting on military pensions….yet here we are….the vote is today. Go figure…

Now…it just so happens that Military Retirement is one of the ~32 categories of cash outlays I track from the Daily Treasury Statement. Monthly outlays are currently running at about $4.1B per month, and growing at about 3% per year. These changes will likely have no perceptible change in the near term to outlays or the deficit, though one would expect a slight reduction in the long term growth rate….whatever that happens to be….yet for some reason…the Bipartisan budget deal went out of it’s way to put this in the fine print… Perhaps they are testing the waters for cuts elsewhere….after all….if Military pensions are cut first, it’s going to be kind of hard for the rest to whine about it when it’s their turn….but then, that doesn’t make much sense either….that implies our leaders actually have an organized plan to tackle spending…which can’t be true.

So all in all, this is immaterial to the long term deficit picture (but not so much for military retirees), but interesting nonetheless. It does bring up a point I made back in July when I wrote Detroit Vs. America – Ich Ben Ein Detroiters

This in itself is something I find so hard to understand about defined benefit plans. How many people in this world would you personally trust to take care of hundreds of thousands, or millions of dollars of future benefits for you? Maybe your parents, siblings, or children….maybe… Uncle Sam? No!! Congress..with an approval rating of what…15%? No!! The mayor of Detroit? No!! Any CEO of any company? Hell No!! Wake up America. The entire premise of all defined benefit programs is blatant fraud. Rather than pay you now…in cash….companies and governments offer to pay you later…in another quarter, when it will be another CEO’s problem…another Congress’s problem…another Mayor’s problem…another President’s problem. Shall I say it again…wake the hell up!! You will not be paid. You were conned…you were scammed….you bought the lies hook line and sinker, and ultimately…you must own the consequences of your poor decisions. Yes you are a victim here…yes it sucks….unfortunately…nothing can be done about it. The money is gone….spent decades ago by politicians you elected.

Bottom line…nearly all defined benefit or deferred compensation programs are fraudulent in nature….designed to screw over the worker, for the benefit of the employer. The benefit for the employer is clear….they get to underpay you in the short term…claiming they will make up for it in the future when you retire. Think about that for a minute. Say I have a plumber over and his bill comes to $200. But when it comes to pay…I tell him “You know what…I’m going to pay you $150 today in cash….then…when you turn 65…I’ll send you $1 a month for the rest of your life.” How many takers am I going to get? Probably none right.

And yet that is the deal tens of millions…hundreds of millions if you include SS of Americans have agreed to whether through civilian employers, government employers, and of course the granddaddy of them all Social Security. Having deferred the cost out of the current quarter or election cycle…the CEO gets his bonus, and maybe the politician makes it through another election cycle….making promises that may not have to be made whole on for decades or longer….Take an 18 year old Marine fresh out of boot camp….the pension he is earning as I type could last until 2085 if he earns his pension and lived to 90.

The fate of his pension….then is in the hands of the next 18 presidential election cycles covering 36 congresses. Does he like his odds? Instead…what should happen is that the company or government should just pay directly whatever the actuarial annual value of the plan is. If it’s $10k per year…then that $ should be paid either directly to our young Marine, or into some kind of retirement account held outside of the government coffers. That way…the liability to the employer is immediate…and no compensation is deferred for future CEO’s or Presidents to worry about. The company then can’t just sit back and hope you quit (or die) or they go bankrupt before they have to pay you what you “earned”. Just remember…If you have a defined benefit plan…you are essentially loaning (your company, your state, or Uncle Sam) money…to the tune of probably hundreds of thousands of dollars…for something that is likely decades into the future. As noted above…there simply aren’t a whole lot of people in this world that I personally would trust with that much money…over that long of a duration….and you can bet your ass Uncle Sam and my employer are not on that list…just saying….


US Budget Deal!!! Yawn….

No real news here…apparently they agreed to increase a bit of current year funding but keep it deficit neutral by pushing offsetting cuts to 2023…Hah!!! Now that’s a great little trick….it’s almost like they’ve given up being sneaky. I haven’t (and don’t plan to) read the bill, but most of the news stories I’ve read note deficit reduction of maybe $5-10B….in what will likely be a $600-700B 2014 deficit…essentially a rounding error….and we can be certain the number was overestimated to begin with. Geez…I don’t even know why I’m writing about it.

I would like to note…to those complaining the “cuts” aren’t big enough…seriously…shut up!!….whatever pennies they claim they are willing to cut were immaterial too….as is nearly everything either party…even the “extremists” are proposing.

This problem does not get fixed by cutting billions, or even tens of billions from small inconsequential programs. Here in 2013..a year with actual cost reductions and nearly 14% surge in revenues…we have a $700B per year problem….on top of $17T in accumulated debt. We need to start talking about cutting Trillions…per year…not over a decade. Just remember that….until I hear some of these outraged Tea Party republicans talk about cutting Social Security, Medicaid, and Medicare…say by 50% or more….I will know that they are either just as mathematically challenged as the democrats, or more likely… just as full of crap.

They won’t, and that’s why this whole game is nearly 100% certain to end in spectacular failure, with the only question left being when…

November 2013 Monthly Cash Deficit Snapshot

The US Daily Cash Deficit for 11/29/2013 was $29.5B bringing the total cash deficit for November 2013 to $142B…a $46B improvement over last year and $18B lower than my beginning of the month forecast of $160B (and $8B lower than the $150B I forecasted just yesterday 🙂 ). 2 things contributed to my more recent miss. First…revenues for 11/29 came in much stronger than last year on 11/30…$7.5B higher. Second, ~$5B of interest payments due 11/30 actually went out 12/2….a timing shift I did not catch. This was partially offset by smaller increases in outlays elsewhere.

11-29-2013 USDD


Revenues were up $27B over the prior year good for an impressive 15% bump, though about $7B of that was thanks to some help from TARP paybacks…we’ll take them sure…but with only $13B left…this cash honey pot is just about empty. Going back to our November forecast…I had forecasted $202B…so this was actually pretty much spot on.


Outlays at $349B were down $18B YOY, a 5% reduction from 2012’s $367B and $13B under my $362B forecast. $5B of that was the interest payment timing I missed. For the remaining variance, maybe it was just one less business day…or maybe they really are cutting costs? this is the second month in a row we are at -5% for outlays….some of it is timing, but if we see it again in December it will be hard to dismiss.


November…even with a $142B deficit was a pretty good month with strong improvement in revenues and the second consecutive month of apparent decreases in outlays. Taking a step back…2013, through 11 months is sitting at a $714B deficit….a $403B improvement over 2012 through 11 months. Revenues are up 14% good for +$349B and Outlays are down $54B…good for a 1.5% decrease. So without a doubt…2013 is going to hit the books as showing impressive improvement over 2012. But at the end of the day…despite all of the revenue gains….we are still looking at a $700B deficit…which is a huge number.

The real question becomes…what’s in store for 2014/2015? Can we continue to knock $400B off the annual deficit…reaching surplus by 2016? I seriously doubt it. 2013 is likely an anomaly…caused by tax hikes and massive fed intervention that is essentially inflating the value of the stock market…which added to some shady accounting at Fannie Mae….led to a very impressive one year revenue gains at +14%. Clearly…anything is possible, but come 2014…I’d be surprised if we top 5% on the revenue side, while outlays will probably start creeping up. The effect will be a temporary new floor/equilibrium between $600-700B annual deficit for another year or so…before heading back up…touching $1T again by 2018. Of course…a recession at any point could accelerate that very quickly.

CBO VS CBO Update 11/5/2013

Well…though it was delayed by a few weeks thanks to the shutdown, Treasury has released the September deficit numbers….capping off fiscal 2013 with a reported 75B (September)surplus. This brings the full year reported deficit to $680B…$38B higher than the $642B they forecasted back in May.

I reported the Cash Deficit for the FY earlier this month, coming in at $774B…$94B higher. So…WTH!!! When I began this CBO vs CBO piece…I unfortunately started with a bad assumption….that the Cash Deficit I was calculating would more or less tie to whatever the annual reported deficit was. I based this on two data points, FY 2011 and FY 2012. FY 2011 had a $7B difference out of a $1.304T deficit and FY 2012 had a $3B difference out of $1.092T. I figured that was close enough for government work.

Unfortunately…it turns out that these two data points for 9/2012 and 9/2013 are actually an anomaly. Historically, there appears to be a $50-$100B difference on average, though it peaked out in 9/2009 at a $402B difference. Since that was bailout mania year, I have to suspect that somehow they are/were excluding some bailout related things, but not others. Who the hell knows how/what they decided, but I think this just goes to further discredit whatever numbers they decide to publish. They are junk…to be discarded completely.

Now…this kind of defeats the purpose of the CBO vs CBO competition….if they can just make up numbers, it’s kind of a silly game right??

Well….Even if we can’t directly compare the Citizens Budget Office vs the Congressional Budget Office…we can at least look at the forecasts of each and compare it to actuals.

So first up….the Congressional Budget Office. At the time I published the initial CBO vs CBO write up, they were forecasting an 845B deficit, subsequently lowered in May to $642B. Actuals came in at $680B…so not that shabby. The initial forecast was high by $165B…and the later forecast ended up being $38B low.

Now…for the Citizens Budget Office…that would be me. My initial forecast was a 1.006T cash deficit revised down to $800B in May. Actuals ended up at $774B, so my initial forecast was $232B high and my second attempt was $26B high. Now…a  $26B miss from 5 months out….not too shabby if you ask me.

The initial miss, however, can be broken down into a few categories. Of the $232B miss, 85B was due to sequestration…I assumed incorrectly that it wouldn’t happen. Second, I did not forecast the $60B Fannie Mae Payday Loan. The rest was primarily and underestimate of revenues. I did expect higher revenues due to the tax hike (primarily on workers) but month after month they came in higher than expected in my initial forecast. That’s a good thing…unless you pay taxes I suppose.

So in conclusion, I will grudgingly give round 1 to the pros at the Congressional Budget Office. I’m not sure if they just got lucky, or if they really are better than me. But all is not lost. In the initial forecast, I framed this not as a single year competition, but as a 10 year long challenge. So…I’m working up my year two projections and should have them out in a few weeks. Round 2 coming up….may the best organization win.