31/7/18: 65 years of profligacy and few more yet to come: U.S. Government Deficits

The history and the future of the U.S. Federal Government deficits in one chart:

Which shows, amongst other things, that

1. The post-2000 regime of deficits has shifted to a completely new trend of massively accelerating excessive spending relative to receipts;
2. The legacy of the Global Financial Crisis and the Great Recession far exceeds traditional cyclical increases in deficits;
3. The more recent vintage of the Obama Administration deficits has been more moderate compared to the peak crises years;
4. The ongoing trend in the Trump Administration deficits is dynamically exactly matching the worst years of Obama Administration deficits, despite the fact that the underlying economic conditions today are much more benign than they were during the peak crises period under the Obama Administration; and
5. Based on the most current projections, by the end of the year 2023, the U.S. is on track to increase cumulated deficit from USD 12.227 trillion at the end of 2016 to USD 20.466 trillion.  This would imply an average annual uplift of USD 1.177 trillion, which is significantly higher than the average annual increase in deficits of USD 838.3 billion recorded over the 2009-2016 period.

The good news is, fiscally responsible,  financially conservative, taxpayer interests-focused Republican Party has given full support to the Trump Administration on what in fact amounts to a restoration of the peak crises period trends in deficits accumulation.

13/6/17: Four Months of the Invisible Fiscal Discipline

U.S Treasury latest figures (through May 2017) for Federal Government’s fiscal (I’m)balance are an interesting read this year for a number of reasons. One of these is the promise of fiscal responsibility and cutting of public spending and deficits made by President Trump and the Republicans during last year’s campaigns. The promise that remains, unfortunately, unfulfilled.

In May 2017, cumulative fiscal year-to-date Federal Government receipts amounted to $2.169 trillion, which is $30 billion higher than over the same period of 2016. However, Federal Government’s gross outlays in the first 8 months of this fiscal year stood at $2.602 trillion, of $57.345 billion above the same period of last year.As a result, Federal deficit in the first 8 months of FY 2017 rose to $432.853 billion, up 6.77% y/y or $27.44 billion.

Given that 4 out of the 8 months of FY 2017 were under the Obama Presidency tenure, the above comparatives are incomplete. So consider the four months starting February and ending May. Over that period of 2017, Federal deficit stood at $274.274 billion, up 11.17% or $27.569 billion on February-May for FY 2016. In this period, in 2017, Trump Administration managed to spend $51.9 billion more than his predecessor’s presidency.

You can see more detailed breakdown of expenditures and receipts here: https://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mts0517.pdf but the bottom line is simple: so far, four months into his presidency, Mr. Trump is yet to start showing any signs of fiscal discipline. Which raises the question about his cheerleaders in Congress: having spent Obama White House years banging on about the need for responsible financial management in Washington, the Republicans are hardly in a rush to start balancing the books now that their party is in control of both legislative and, with some hefty caveats, the executive branches.

20/1/17: Obama Legacy: Debt

Great chart via @Schuldensuehner showing that Trump presidency is off to a cracking start, courtesy of Obama legacy: debt overhang

Now, keep in mind: the entire legislative legacy of Obama's administration (amounting pretty much to Obamacare) can be undone by Congress and the new President. What cannot be undone is the debt mountain accumulated by the U.S. That mountain is here to stay. For generations to come.

Oh, and the above chart does not even begin to describe the mountain of unfunded liabilities that keeps expanding from President to President.

8/11/2012: A quick look at the 'fiscal cliff'

So with US elections over and status quo confirmed as the preferred option by the American voters, it's time to look at the 'fiscal cliff'. Not my favourite reading at night, but... here are some factoids and opinions:

Pictet's 'rough estimate':

And Barclays summary of alternative scenario forecasts:

Their analysis prior to the elections:
"The Congressional Budget Office has noted9 that if the fiscal cliff hits, ie, the stipulations under the current law are not changed or pushed forward (referred to as a “punt”), the fiscal tightening could lead to economic conditions in 2013 that would probably be considered a recession, with real GDP declining 0.5%, a 2.5-2.7% swing from 2012 GDP. This scenario is not our base case; we see 2012 and 2013 GDP at roughly 2.2% and 2%, respectively, as we expect new legislation to address broader fiscal concerns in the context of near-term stability. That being said, we believe the chances of going of the fiscal cliff temporarily are higher if President Obama is elected ...This supports the view that near-term risk-off (ie, breakeven steepener) sentiment is more likely in a Democratic win. In any case, the ultimate outcomes under both administrations are likely to be similar."

And: "The final question relates to the approach each administration would take to put the US on a sustainable medium term fiscal path. Here again, there are two very different plans. That passed by the Republican House focuses heavily on spending cuts ($6trn vs. the CBO alternative scenario), while the president’s plan relies more on revenue increases. The House plan pushes debt/GDP down to 62% by 2022 but implies heavier fiscal tightening than the president’s budget, which takes debt/GDP to 76%".

Note that the US is likely to face much steeper impact of the fiscal cliff than other countries:

Source: Goldman Sachs Research

JP Morgan: 

" Overall, we now see cliff-related fis- cal issues subtracting about 1%-pt from growth next year, up from our prior assessment of 0.5%-pt. The table ... summarizes our expectations regarding fiscal cliff outcomes. ...There are other important non-cliff fiscal issues, such as declining defense spending, which are not the topic of this note. (We estimate these non-cliff fiscal measures have subtracted about 1%-pt from growth relative to trend over the past year, and will sub- tract a similar amount in the coming year.)"

In contrast, here's the IMF view: "On the fiscal cliff in the United States, we believe that it must be avoided. It would entail a tightening of fiscal policy of roughly 4 percent of GDP and would plunge the American economy back into recession, with deleterious consequences for the rest of the world. You mentioned that fiscal adjustment has to happen in the U.S. to avoid a downgrade. Indeed, what we are advocating is a fiscal withdrawal, an adjustment of about 1 1/4 percent of GDP, which would entail that a number of the so-called Bush tax cuts could be prolonged, and that other measures that have helped support the economy can be prolonged too. But in the end, there would still be an adjustment, a reduction in cyclically adjusted terms of the fiscal deficit of 1 1/4 percent of GDP, and this puts the U.S. economy on track toward better public finances. What is much more important in all of this is that in the end there is a medium-term plan that is being developed that explains very clearly how the deficit is then brought down further over the next five years, and beyond, from the still high level that it would have next year."

Which is consistent with the IMF earlier Article IV assessment: "Ongoing political gridlock could block an agreement on near-term tax and spending policies. If all temporary tax provisions were to expire and the automatic spending cuts to take effect, the 2013 fiscal contraction would be very sizable
(over 4 percent of GDP). This “fiscal cliff” would reduce annual growth to around zero, and the economy would contract in early 2013. Even if the “fiscal cliff” were quickly unwound, the damage to the economy could be substantial, especially if consumers and businesses were faced with continued uncertainty about tax and spending policies. These strong negative growth effects would in part reflect the limited effectiveness of monetary policy at the zero interest rate bound. Some anticipatory effects from the cliff could be felt already in late 2012, with spending held back by policy uncertainty—subtracting perhaps ½ percent from (annualized) growth in the second half of 2012 according to the Congressional Budget Office (CBO)."

15/9/2012: In life things are a bit like in art

The best illustration of the current Presidential Campaign in the US is this painting by Mark Tansey:

Depicting Sherlock Holmes and Professor Moriarty in a deadly struggle at the edge of the precipice. One articulate and sophisticated villain v one cool dude who delivers over the fiscal cliff. Ah, one would hope we can distinguish which one is which: is Holmes = Romney or Obama? Never mind, the truth is - it's the cliff that dominates the whole set up.