Tag

Budget Deficit

Jun 26
0

6/21/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Surplus for Monday 6/24/2013 was $12.6B….again on higher than expected (by me) “tax deposits not withheld”. I’m just going to get out and own this…I jumped the gun earlier this week when it appeared like we were going to see a 20% decrease in taxes not withheld….which would be a very bearish indicator for the rest of the year and beyond. By this time in 2012…taxes not withheld had slowed to a trickle at less than $1B per day. Today…we actually see an increase…from $5B Friday to $8B. Lesson learned…patterns don’t always hold. So anyway…this is good news, and the $8B of receipts pushes the YOY to a positive 10%…with 4 days to go, we could see even bigger gains, but I’m done guessing for now:)

06-24-2013 USDD

So with four days left we have net cash Revenues up a bona fide 10%…not shabby.

Outlays are down $48B, and while a good chunk of this, about $35B is timing, the rest of it looks legit so far… kinda makes me wonder if treasury is “slow paying” vendors or something. Interestingly….the end of the month should see this apparent decrease in outlays get even better. We’ve been talking about it all month….how about $35B of June 2013 cost got sucked into May because of how the weekend fell. June 2012, on the other had had the opposite issue…$30-35B of July 2012 payments went out in June….creating a temporary $65-$70B delta between the two years. We haven’t seen it yet because it happened on June 29….so it hasn’t crept into our charts yet. We’ll catch the other end of this next month…when July 2013 should end up quite a bit higher in outlays.

Fortunately, there is an easy way to filter all of this out….all you have to do is ignore the months and look at a YTD. I don’t typically post these, but I’ll throw them out there today. Through June 24, 2013 has increased revenues 13% vs 2012, while outlays are down 1%. Due to this… the deficit over the same period has dropped from $520B in 2012 to $326B in 2013, a $194B improvement. Looking forward, if the trend follows, we could see a bit more improvement on outlays, but not much…maybe 1-2%, but it’s not a sure thing. Revenues appear to be petering out….the 13% is buoyed by an extremely strong April, as the months go by, April’s weight will drop, and the average will drop. How far…I have no idea at this time. A few days ago, the data was looking like we might be headed down to 5-7% growth. Now…that is looking pessimistic….back to 10-11%?? I guess we’ll just have to wait for the data to find out.

Jun 25
0

Interest Rates Rising – What Does It Mean For The Deficit??

By | Commentary

At $221B over the last 12 months, cash interest paid on the public portion of the debt isn’t huge…it’s about 5% of all outlays, but it holds an incredibly important role in the future of the debt/deficits. To fully understand why…let’s go back about 6 years to the beginning of 2007. Public debt outstanding was at $3.8T, and annual cash outlays for interest were at $152B. Fast forward to the end of May-2013…where public debt outstanding was $11.9T with the aforementioned $221B of cash interest payments. Does that sound a bit off to anyone?

06-24-2013 TTM Cash Interest 2007-2013

It should…Over the same time period that publicly held debt outstanding has more than tripled, cash debt payments has only increased 45%. It’s a really sweet deal….if you can get it…and by actively manipulating the market (screwing over savers in the process) that is exactly what the government has accomplished. The key, of course, is lower rates…declining from an estimated 3.2% in 2007 to about 1.9% as of the end of May. I say estimated…I take the TTM cash payments, and divide it by the average public debt outstanding over the prior 12 months. No…it’s not perfect, but applied consistently I think it tells right story with an acceptable margin of error.

06-24-2013 Interest Rates 2007-2013

So some quick math…just say we can assume 2007’s 3.2% was a “normal” number….something we could plug into a 50 year forecast. I’m not sure it is, but let’s go with it. At that rate…we would be spending $380B per year on external interest payments…$160B over the current run rate. Over the 10 year timeframe our congress critters seem to prefer….It would be a lot more than $1.6T due to the magic destruction of compound interest. This in an era where we can’t even agree on simple cuts that will only save a few billions a year.

It has long been my theory that this is the true primary reason behind low interest rates. Not stimulating lending, or the economy, or making housing affordable…those are all just cover stories for this….manipulating interest rates down to near zero is the only way in hell the government can afford to finance the budget without the whole thing blowing sky high. That is why my thesis is that they simply cannot allow rates to go higher at all, and so when they invariably do go higher…it indicates that the Fed has lost control, and things could get very ugly very fast.

This is why I believe this is one of the most important charts I track each month. Once that curve starts to head up and crosses 3%…the long term deficit is going to take off, exposing what has been obvious for quite a while anyway…the US government will default on on and off balance sheet debt sooner or later….the only question is when, and who gets screwed the most (Seniors, veterans, government employees…all of the above?).

So…if you’ve been to a finance site recently…you’ve probably heard that rates are headed up across the board. Is this the end?? Well…let’s look at some data. It looks like…from yahoo finance, that the 6 month bond has increased 50% from .06% to .09%. That’s an incredibly low rate….so bumping it up 50% is more or less inconsequential for now. Say $1T of the $11.9T debt is 6 months or less….assuming I have my decimals in the right place…that’s only $1.2B per year at .06%…or $1.8B at .09%….rounding errors really.

Obviously, the 6 month is only a small piece of the market, but I think the illustration works for the entire spectrum…extremely low rates have increased a bit in the last few weeks, but are still extremely low. Furthermore….the $11.9T of debt is fixed for terms of  days, up to 30 years…. so while bondholders are immediately affected by rate swings, treasury more or less only has to worry about the debt it is rolling, about $600B per month(primarily short term), plus any new deficits that need financing…say $75B per month. To further complicate things, we are using the cash interest payments, which are going to lag issuance by up to 6 months.

So…for now, while it’s not a good sign, I don’t see the action in rates over the last month creating an immediate crisis, but perhaps sowing the seeds for an inevitable crisis down the road. It will be months before these rather small (in the big picture….maybe not so much if you were betting with leverage the other way) increases in rates flow through to cash, and even then they probably won’t be noticeable. Still….very interesting stuff to keep your eyes on. I’ll probably start sounding the alarm when the rate creeps back up past 2.25% and looks like it is trending up. Given the vast size of the market…this isn’t going to happen overnight. Even if the seeds have indeed been sown in the last few weeks… I think it could be a year or two before enough debt is rolled at higher rates to start seeing a materially higher cash interest expense.  I guess when it comes down to it, we all know how this parade ends….it’s the timing that we aren’t sure about.

Jun 22
0

6/20/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Deficit for 6/20/2013 was $0.7B bringing the June 2013 Surplus through 20 days to $57B. While declining, tax deposits “not withheld” did not drop off as steep as they did last year, putting a $2B dent in the YOY gap, and pushing the 21% decline we had through yesterday down to 15%. With a $6B gap remaining, it doesn’t look like we will come close to posting a 32% YOY gain like we saw with the first four months of the year. While obviously anything could happen…a second month of actual declines from this revenue category seems likely at this point.

06-20-2013 USDD

With six days left…I’ll go ahead and forecast the June deficit, if for no other reason than to see how much I can miss it by 🙂 Flipping back a few weeks, I think my last estimate was $105B surplus. As it sits, we are at $57B. I’ll add $60B for the rumored Fannie Mae payment….though I find it odd that I have not been able to find any recent news stories on this. That gets us to $117B surplus. I’d actually be happy staying with $105…assuming that we’ll run a $12B deficit (excluding Fannie) over the next 6 days, but that seems a little light, so I’ll bump it down $5 and just guess and even $100. If Fannie doesn’t come through, or we get some other surprise revenue…like from Tarp or Freddie….I could miss big, but I don’t really have a good way to guess those…we’ll just have to wait and see.


Jun 21
0

6/19 Daily US Cash Deficit

By | Daily Deficit

The US Daily cash deficit for 6/19/2013 was $1.1B….marking the first deficit in a few days 🙁

06-19-2013 USDD

 

The charts continue to look impressive, but it is mostly an illusion based on the apparent large drop in outlays…. $47B. I want to revise some of the numbers I threw out yesterday, after closer analysis today, I didn’t quite have it right when I pondered that $12B of the improvement was related to social security timing…forgetting that I had already adjusted for that by including an additional day in 2012.

Of the $47B, I am now estimating that $35B, rather than the $30B I have been using all month is a better estimate of the costs that shifted into May. Of the remaining $12B, as of today, I am left to believe these are bonafide decreases in outlays(through 19 days). Just eyeballing it…looks like defense vendor payments are down $4B and education department programs are down $4B, with the rest spread around a dozen smaller categories. I wouldn’t get too excited yet, but facts are facts….lets see what happens.

Revenues continue to disappoint (me at least). Net revenues are up 4% YOY, taxes withheld are up 8%, and taxes not withheld are down 21%. Corporate taxes are still up 9%. The key to any long term budget solution is first holding cost constant….something we have actually been able to do for the last 3 years or so (not for much longer though…thanks to social security). Second…you have to be able to grow revenue…for a sustained period of time at or around 10%. For reference…2010 actually decreased over 2009, but was basically flat. 2011 posted an 8% increase and 2012 posted 6%. For a brief moment in time… the first 4 months of 2013…we were running at 15%…very impressive. Yet…after the tax season…we find ourselves sinking back to the middle single digits.

If you’ve ever modeled exponential growth…you realize that the difference between 5% and 15% in year one can be pretty big by the time you get out to year 10. The CBO is projecting 10-12% growth for the next 3 years….I’ll be surprised if we get half that after 2013. Add a sell off in the stock market, and even a mild recession, and you could go negative in a quarter or two….completely tanking the rosy CBO projections our brilliant politicians are using to make extremely important decisions (not that it really matters)..Ok..enough doom and gloom…I should probably wait a for a few more months of data…after all…we should be getting a cool $60B from Fannie Mae any day now…

 

Jun 20
0

6/18/2013 Daily US Cash Deficit

By | Daily Deficit

The US Daily Cash Surplus for 6/18/2013 was $5.7B as we got our first good glance at June “taxes not withheld” at $12.3B. There are still a few days of heavy inflows on deck, but at this time, we are down $6B, or 20% from last June. That’s not a good sign, but I’ll give it a few more days before I call it.

06-18-2013 USDD

As it stands…the charts don’t look that bad…let’s walk through it. Net revenues are up $9B, which sounds good, but it’s only a 5% increase…our baseline is at 12%. Cost, on the other hand, look to be down an amazing $46B. Of that…$30B is timing related to 6/1 payments going out in May. $12B is related to social security payments…that should catch back up tomorrow…and the rest is because I have an additional business day (6/19) for 2012. This more or less sync’s up the months/days and since June 2013 is going to have one less business day anyway….I feel this is a more accurate presentation of the data.

All this leads to an apparent $55B YOY improvement in the deficit, and we haven’t even received the $60B payment from Fannie Mae yet. But if we back out the cost timing and social security payment, and we are really looking at a $13B improvement so far….not impressive at all compared to what we saw between January and April. We have 8 business days to go….it will be interesting to see where we end up. Two disappointing months in a row (backing out one off revenues and outlays) is not a trend line we want to be on but it is looking more and more likely.