And we’re back!! I haven’t done a post since the end of 2018 when we were knocking on the door of a $1 Trillion dollar deficit, but I have been diligently tracking the deficit. What I have known for a while is that as long as we could add debt at near zero rates….this game could go on for a while and of course it has.
I always figured the most likely trigger for default would be a recession that cut revenues and exploded costs and it looks like that theory is about to be tested…though of course I never imagined anything like this. April, usually a solid ~$150B or so surplus month is now looking like it may post the largest deficit EVER as tax day was pushed back to July, regular inflows are slowing, emergency refunds are getting sent out and spending is exploding. through 15 days we are running a $425B deficit compared to the largest I have on record….$262B last February. The largest Deficit of 2009 was $231B.
So where to from here? There is a lot of uncertainty….is this a couple month fluke and then the economy settles back at say ~90% of where it was by the end of the year? Or did we just whack 30% off GDP for years? Nobody knows…surely not this guy.
The TTM revenue had been about $3.8T…let’s assume we end up losing about 20% of that and only get revenues of $3.0T over the next 12 month period.
On the cost side..we were probably going to spend $4.9T before Corona. The CARES Act headline is $2.0T…but some of that we have already captured in the above as revenue reduction….the rest, kind of hard to say…I will be conservative for now and just say +$1T over the next 12 months getting us to $5.9T of spending vs $3.0T of revenues giving us a $2.9T deficit.
That’s a wild ass guess….but it’s a decent starting point we can refine over time…let’s just call it $3.0T deficit over the next 12 months. My gut is….given how un-investable this stock market is they can pull this off (safety right??)…and successfully issue $3T of new debt… growing from $24B to $27B… in the next 12 months…all issued at near zero rates. That’s nasty, but if it’s a one time hit…probably possible…probably. But if it starts to look like the new normal….if Corona wipes out whole industries and fundamentally changes life and how we interact with each other…that could be the trigger that knocks down our pretty mansion of cards.
Right now…huge uncertainty all over the place, but let’s start there…Stay tuned folks…this is about to get (more) interesting 🙂
