January 2018 US Cash Surplus $24B

The good news is we start the year with a surplus, but that was more or less expected….January is in general a strong revenue month as un-withheld tax deposits start flowing in…$75B in January vs. $13B in December. Last January ran a $32B surplus and January 2018 comes in just a little lower at $24B.

Revenue

Tax cuts may have been passed for 2018 but 2017 taxes are still flowing into the coffers leading to a $19B, and 5% YOY increase…not a bad start to 2018. Don’t get too excited yet….most of that can be chalked up to an additional business day. New tax withholding tables were released and supposed to be implemented in February…I think I can see it in the February data but it will be March before we really have enough data points to be sure. From here out…just staying flat should be seen as a win, so I don’t really expect that $19B YOY lead to hold for long, though tax refund season can always throw us for a loop either way.

Outlays

Outlays increased YOY by $27B, food for an 8% bump, more than offsetting the revenue gains. As with revenue, the extra business day is part of it…there were increases pretty much accross the board but the Thrift Savings plan jumps out…$3B  January 2017 to $13B last month. I don’t have an inside scoop here, but basically this is the government employees equivalent of a 401K plan. My guess is that this movement is related to when federal employees invest in US governent bonds. In normal times, there are a few $B going in and out of the fund in any given month. However, whenever we hit the debt limit and enact “Extrordinary Measures” it looks to me like Federal employees/(retirees??) start pulling out money hand over fist. Now that the debt limit has been suspended again, I would expect that to calm down and settle back into the $2-3B per month range.

Outlook

While January has become a reliable surplus month, February is always the worst month of the year as tax refunds start flowing out at around $100B per month. Add to that some big interest payments and generally weak revenues and we will likely post a February deficit in the ballpark of $250B with the primary variable being tax refunds. For the full year, the recent deal to avoid a shutdown and increase the debt limit supposedly added close to $400B of spending over the next 2 years including nearly $100B of disaster aid. I don’t have a good feel for the timing, but spread equally that’s about $17B a month or a 5% increase by itself, not including the baseline increases we already expect like the gradual march upwards in Social Security, Medicare, and Medicaid. I will stay tuned for details but a $1T deficit in 2018 is looking more likely by the day.

December 2017 US Cash Deficit $10B, 2017 Cash Deficit $710B

Nothing really interesting about December’s $10B deficit, but we now have a total for 2017 which rang up at $710B, $13B higher than 2016’s $697B deficit. This is the highest annual deficit since 2012 topping 2013’s deficit by just $1B and is the second year in a row of increases.

Digging in a bit, revenues were up a solid 3.1% while outlays were up 2.9%, more or less cancelling each other out, leaving us with just a 2% increase in the deficit.  Looking at the Wayback machine, it looks like last January I eyeballed 2017 with a 4% increase in outlays and a 2% increase in revenues, which penciled out to an $800B deficit. Not a great estimate, but good enough I suppose. It’s hard to be happy about a $710B/Y deficit, but looking forward, it’s hard to imagine it gets any better from here.

2018 Forecast

We don’t want to think too hard about it, so on the outlays side, I’ll go back to the +4% growth, which is $170B for the year or $14B/month. Now the biggy…tax cuts. While they go into effect January 1, it’s not quite that simple…2017 taxes will still be flowing in through April 15th, and the withholding tables are unlikely to be updated before February, so calendar 2018 won’t quite get a full year of tax cuts showing up in the cash receipts. I’ve seen quite a few estimates all over the place, so lacking any data to do real analysis…I’ll just pick a nice round, and conservative number, and say cash receipts in 2018 will decrease by $100B, pulling revenue down from $3.55T in 2017 to $3.45T in 2018. Following the logic, this will be weighted in the second half of the year, and overall pencils out to about a 3% YOY decrease.

So…quick math…+170B outlays and -100B revenues puts the 2018 cash deficit at around $980B, $270B higher than 2017 and right back to knocking on $1T. Yikes!!that didn’t take long…maybe we should be happy it took them a year? Nah…I mean once you have $20T of debt, do another few hundred billion really even matter? I doubt it.

Default Near?

When will the US default and how?  The truth is that this can continue as long as Treasury can continue to issue a trillion dollars of new debt annually at ~2% rates to new fools, the Fed, algos etc… Don’t get me wrong…this debt can never be repaid…it will either be inflated away or officially defaulted on. Maybe that’s what the stock and housing markets are telling us….maybe they aren’t at high’s…the USD is just worth that much less and people are hedging against it’s decline by bidding up the price of tangible assets and companies that own them. Just a thought that’s been rolling around in the back of my head for a whle. Whenever it happens…I for one will not feel sorry for the blind fools who even for a second believed US debt was risk free.

November US Cash Deficit $161B

The US Cash Deficit for November came in at $161B compared to $157B last year pushing the 2017 cash deficit through 11 months to $700B, $17B over last year’s $683B.

No real surprises here…revenues and outlays are up about 3%, and with the bigger base of outlays, we have a small increase in the deficit through 11 months.

December, as a quarter end  should bring in quite a bit of extra revenue and should post just a small deficit assuming all of the timing issues flow through the same…last year was just $14B…my current model has this December at a $9B cash deficit.

So…with 11 months in the books, absent a surprise, it looks like the deficit will surpass $700B and continue growing for the second year in a row. There is a lot of uncertainty about 2018…I am still trying to wrap my mind around the tax cuts, but my wild guess with very little analysis would be tax cuts keep revenue growth flat…and outlays grow at 3-4%….that would put the 2018 deficit at a little over $800B….if revenues decrease we could be knocking on $1T a year in just a few years time.

October US Cash Deficit $60B

We now have the finals for October which clocked a $60B cash deficit.

Revenues were solid, up $15B, but there was an extra day so it’s not as impressive…but still good 🙂

However, outlays were up $30B…some timing, some because of the extra day, and a good chunk of debt issued at a discount….nearly $10B when a normal month may be at $5B. The deal with this is…say Treasury issues a $100 12 month bill for $99….they get $99 of cash, but debt increases $100B. Now in a perfect world I would amortize that $1 over the year, but to avoid a lot of unnecessary complexity that would add little value…I essentially just book the interest expense when it is issued. Over the year….it should more or less pencil out, and it’s not material anyway…but now you know!! Anyway…I’ll keep an eye on it but it’s probably nothing.

Year To Date

Looking at the YTD…Revenue is solid(and boring) at +3.2% so are outlays at +3.1%. The 2017 YTD has now overtaken 2016 after trailing slightly for most of the year. It’s only at +$13B, but with 2 months to go 2017 is on track to top 2016’s $697B deficit by a little….then we go on to 2018…will it be more of the same, or will a tax cut actually sneak through and put us back over $1T?

November Outlook

Looking forward to November, I am expecting about a $150B, in line with last November driven by lower revenues and rising outlays, including about $42B of interest payments.

September 2017 US Cash Deficit $14B

Revenue flat and outlays up a bit, pushing the September Cash deficit from $5B last year to $14B. September will generally run a small surplus due to quarter end tax inflows, but for 2 years in a row now October 1 has been on the weekend, pulling about $40B net of October outflows due October 1 into September……going out 9-29 instead. It’s just a timing issue…Septembers loss is Octobers gain.

Looking at the 2017 through 9 months, revenue is up 2.9% and outlays are up 2.4%…and they more or less cancel each other out, leaving the annual deficit at $478B, just $3B lower than last year. With 3 months left, there is no reason to expect a material variance for the year…2016’s full year cash deficit was $697B…2017 should be right around there. 2018 will probably look similar as well, with both outlays and revenue growing at 2-3% . So…we have a new baseline…a $700B annual cash burn…for now…all it will take is a war, a recession, tax cuts, or all 3 and this new normal….as terrible as it is…could get a lot worse fast.