In a burst of inspiration (or depravity depending on your POV), I recently wrote that the US was embarking on "a level of (fiscal) debauchery unseen since the heyday of Sodom and Gomorrah." However overstated, I can now comfortably say that the truth is stranger than fiction as all my expectations have been exceeded. Perhaps you're thinking, "What happens when you annualize this figure?" Well, it comes to $3.278 trillion. Even I am 100% certain that Sammy's IOUs won't amount to that much in 2009. Not only are there different high and low points in revenue collection and spending during a fiscal year, but spending at this rate would imply public ownership of vast swathes of the US banking industry and much other besides. For instance, a quick check finds that $273B exceeds the market capitalization of Citi, JP Morgan, and the Bank of America.
The "Paulson Plan" formerly known as TARP doesn't inspire confidence at all as the US Treasury boss keeps changing his mind on how to spend $700B or so. At first, it was for mopping up toxic securities via a reverse auction process to facilitate the process of price discovery. More recently, he changed course and said the funds should be used to facilitate student loans, auto loans, and consumer credit by reviving moribund securitization markets for these. It simply befuddles me why Paulson thinks further indebting already overindebted American consumers should do the trick. As Nouriel Roubini likes to say, the problem bedeviling many in the US is insolvency, not illiquidity. There is cold comfort that Paulson will be gone soon. Will Obama's Treasury man be similarly loose with the purse strings? From an impending US automaker bailout to various "stimulus packages," I am not looking forward to any improvement.
Final fish to fry: continued dollar strength is inexplicable given the unprecedented debts the US will mount. In contrast, the EC will actually try to curtail fiscal expansion in the coming year. Keynes once said the market can stay irrational longer than you can stay solvent. Dollar strength is perhaps the most irrational thing I've seen in a truly mad year. This "special FX" is due for a really good whupping, though many others take the Cheneynomic route.
In any event, I am now upping my estimate in the official IPE Zone parlor game of "How Much More Will Sammy the Beggar Owe in 2009?" to the middle of the $1T to $2T range. A trillion here, a trillion there...from Bloomberg:
The U.S. budget deficit last month exceeded the shortfall for President George W. Bush's first full year in office, spurred by purchases of stakes of some of the nation's largest banks. The deficit in the first month of the 2009 fiscal year climbed to a record $237.2 billion, compared with a gap of $56.8 billion in October last year, the Treasury Department reported today in Washington. Revenue fell 7.5 percent, while spending soared 71 percent.
Treasury Secretary Henry Paulson spent $115 billion last month to buy shares in eight of the biggest U.S. banks as part of his $700 billion Troubled Asset Relief Program. Deteriorating credit conditions and the economic slump are straining the nation's finances and will leave President-elect Barack Obama with a deficit worse than the record $455 billion of last year.
``The deficit is going to explode this year,'' said David Sloan, a senior economist at 4Cast Inc. in New York. ``Given that the economy is going to be even weaker next year, the Obama administration will likely need to spend more, pushing the deficit up'' to as much as $1 trillion this year, he said. Treasury also spent $21.5 billion to buy mortgage-backed securities from Fannie Mae and Freddie Mac in October, up from $5.1 billion a month earlier, today's report showed.
The October deficit was forecast to widen to $200 billion, according to the median of 32 estimates in a Bloomberg News survey of economists. The total exceeded the $232 billion gap predicted by the Congressional Budget Office on Nov. 10. Corporate income tax receipts fell to $81 million in October, from $6 billion a year earlier, according to the Treasury. Individual income-tax collections declined to $86.2 billion last month, down 10 percent from $95.6 billion a year earlier, the report showed.
Total revenue fell to $164.8 billion in October, compared with $178.2 billion a year ago, according to the Treasury report. Spending increased to $402 billion from $235 billion last year.
Outlays for the Social Security Administration rose by 13 percent from a year ago to $59.2 billion) from $52.6 billion, while Department of Defense spending rose 16 percent to $66.1 billion from $57 billion. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, totaled $76.5 billion, up 31 percent.
The Treasury this month said it will more than triple its planned debt sales this quarter to help finance this year's shortfall. The government needs to raise money not only for the TARP program, but also to pay for its bailouts of mortgage companies Fannie Mae and Freddie Mac. ``This year's financing needs will be unprecedented,'' Anthony Ryan, Treasury's acting undersecretary for domestic finance, said in a speech last month.
Borrowing needs are expected to rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July. Bond trading firms predicted the shortfall may rise to $988 billion in 2009.