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Daily Deficit

Dec 23
0

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

By | Commentary, Daily Deficit

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 🙂


Dec 21
0

US Daily Cash Deficit 12/19/2013

By | Daily Deficit

The US Daily Cash Deficit for 12/19/2013 was $4.7B bringing the December 2013 surplus through 19 days to $17B.

12-19-2013 USDD

The main story continues to be that revenues look low….here in 2013, we have come to expect revenue gains of 10%+ each month…yet here we are with only 7 business days left sitting at -2% vs 2012. What I suspect is happening is a preview of what we may see all of next year…You see, looking back a year, everybody was running around worried about the fiscal cliff…a part of which was taxes being raised effective 1/1/2013. So of course…tax accountants were working into the wee hours of the night in excel trying to figure out the optimum year end tax moves. For many…generally corporations (remember those “special” dividends) and the wealthy…it made a lot of sense to take gains in 2012…and therefore paying taxes in either late 2012 or early 2013. This created a “surge” in revenues that started in 12/2012.

Now…that’s a good thing…but the problem is…it’s one thing to post +10% YOY gains once due to a one time event or change in tax rates ect….you get that one time boost to a higher steady state. But then…12 months later…it becomes very difficult to get another 10% gain on top of the first 10%. It’s kind of like getting a promotion in corporate America….you get that nice one time boost…but come Jan 1, you’re back to that same o’l 1% raise everybody else gets. This is more or less what I am expecting for 2014…somewhere around 4-6% growth, though it wouldn’t surprise me if it comes in lower.

Back to December…every day that passes without closing the gap makes it less likely that it will happen. I still expect revenues to end up YOY positive, we do have an extra day after all, but the window for a late month surge is shrinking….