Ticking Time Bomb: US Govt Spends Nearly Half A Trillion Dollars This August Alone

The government has just spent nearly 40% more this August than last. Here are the details of a budget deficit that is starting to blow-up…

from Zero Hedge

Two days ago we previewed the the US budget deficit for the first 11 months of fiscal 2018, which according to CBO data, hit $895 billion, up $222 billion or 39% from the same period last year. Additionally, we noted that according to CBO calculations, the US would hit a $1 trillion deficit in calendar 2019, one year sooner than the previous forecast of 2020.

Today, the US Treasury released the detailed budget deficit breakdown for the month of September and the first 11 months of the year, and the numbers are scary.

According to the latest Monthly Treasury Statement, in August, the US collected only $219BN in tax receipts – consisting of $106BN in individual income tax, $93BN in social security and payroll tax, a negative $3BN in corporate tax and $24BN in other taxes and duties- a drop of 3.2% from the $226BN collected last August…

… but more concerning was that in August, the 12 month trailing receipt total was barely higher compared to a year ago, up just 0.3% Y/Y after rising as much as 3.1% at the end of 2017, and on the verge of turning negative year over year.

The real highlight of the August budget report was that government outlays, or total spending, soared to $433.3 billion, not only 30% higher than a year ago, but the highest government monthly outlay of any month on record.

This is where the money was spent: social security ($108BN), defense ($65BN), Medicare ($83BN), Interest on Debt ($32BN), and Other ($146BN).

This resulted in a August budget deficit of $214 billion, which was not only one of the highest one-month deficits on record, but also the highest August deficit on record.

The August deficit brought the cumulative 2018F budget deficit to over $898BN during the first 11 month of the fiscal year, up a whopping 40% over the past year.

This was the highest 12 month cumulative deficit since February 2013; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion as soon as next year.

And while the August numbers had a few calendar quirks, until recently Most Wall Street firms forecast a deficit for fiscal 2018 – which closes on September 30 – of about $850 billion, a number which has already been surpassed by $50 billion, at which point things get… much worse. As we showed In a recent report, CBO has also significantly raised its deficit projection over the 2018-2028 period.

But while out of control government spending is clearly a concern, an even bigger problem is what happens to not only the US debt, which recently hit $21.3 trillion, but to the interest on that debt, in a time of rising interest rates.

As the following chart shows, US government Interest Payments are already rising rapidly, and just hit an all time high of $538 billion in Q2 2018.

Interest costs are increasing due to three factors: an increase in the amount of outstanding debt, higher interest rates and higher inflation. Needless to say, all three are increasing; furthermore, a rise in the inflation rate boosts the upward adjustment to the principal of TIPS, increasing the amount of debt on which the Treasury pays interest, turbocharging the amount of interest expense.

The bigger question is with short-term rates still just around 2%, what happens when they reach the mid-3% as the Fed’s dot plot suggests it will?

Goldman: What Is Going On In The US Is "Usually Reserved For Times Of War"

Back in February, when the world was starting to become familiar with the trajectory of US debt and deficit spending under Trump's fiscal plan, we showed a chart from Goldman which made a troubling forecast: the US fiscal situation was headed for "banana republic" status, or as Goldman put it more politely, "uncharted territory" as a result of soaring federal debt and interest expense.

Now, in a follow up report, Goldman economist Alec Phillips identifies the key risks that will worsen the "already-grim" US fiscal outlook (which he defines simply as "not good"). As a reminder, just yesterday we reported that the US fiscal deficit has resumed its surge, rising 40% Y/Y to $898BN for the first 11 months of the year, following the biggest monthly outlay by the US government in history.

Goldman - which now projects a $1.05tn deficit (4.9% of GDP) for FY2019 - picks up on this and writes that its expects that figure to rise significantly over time, reaching 5.5% of GDP by 2021 and 7% of GDP by 2028. This, Goldman adds ominously, "puts US fiscal policy in  uncharted territory in two respects." 

First, running such a large primary deficit (federal revenues minus spending, not counting interest expense) in a period of strong growth and low unemployment is quite unusual, and according to Goldman is "generally reserved for times of war" as shown in the chart below.

Second, the high (and rising) federal debt-to-GDP ratio "comes at a time when interest expense looks likely to rise substantially as well." This is a similar argument to what Goldman noted back in February, and it also points out that the US also ran a very high debt-to-GDP ratio during World War II, but at the time borrowing costs were fairly low. While Goldman concedes that federal interest expense has been elevated before as well, most recently during the “bond vigilante” era of  the 1990s, "the level of federal debt was low then and the primary deficit was relatively small. Over the next decade the US is likely to face both extremes at the same time."

The gloom continues from Goldman, which next notes that not all of this is due to policies enacted in this Congress, and is one of the few to remember that US debt actually doubled under the previous administration:

In fact, the relationship between the deficit and unemployment rate began to diverge during the Obama administration, as Congress began to loosen its grip on spending and revenues increased by less than they typically do at this point the economic cycle.

That said, the current admin isn't much better, and Goldman says that "much of the deterioration in the outlook has occurred more recently, however. Congress has eased fiscal policy substantially over the past year, by cutting taxes by 1.5% of GDP in FY2019 and 0.6% over the next ten years, lifting the caps on defense and non-defense discretionary spending (0.7% in FY2019) and approving additional emergency spending (0.4%). This fiscal easing should boost GDP growth by around 1pp in 2018, but we expect the boost to taper after Q4 of this year, as the growth effects of the tax cuts and spending increase fade."

One big near-term catalyst for the US fiscal trajectory is what happens during the midterms: the bank, which previously predicted that Democrats would win control of the House as the GOP retains the Senate, notes that "the midterm election result could influence the outlook somewhat" as divided government (our base case) "would lead to a slightly negative-to-neutral fiscal impulse by 2020."  Even if Republicans maintain majorities in the House and Senate, Goldman would expect a slight additional easing as modest tax cuts could be enacted through the reconciliation process; but even in that case, "the fiscal effects on growth should be only modestly positive under such a scenario, if positive at all."

So what is the worst that could happen?

Phillips explains that Goldman's "base case" is for congress to extend expiring tax cuts and to maintain current levels of discretionary spending in real terms. In this scenario, the deficit will reach 7% of GDP by 2028 and federal debt will reach 104% of GDP. This, however, is a more positive outcome than several potential alternative scenarios Goldman has analyzed which include:

• 1. Business as usual. Our baseline scenario calls for a small amount of passive fiscal tightening through “real bracket creep” in the tax code, which refers to the tendency for revenues to rise as a share of GDP as real incomes rise; and through roughly flat real discretionary spending growth, which reduces the level as a share of GDP. However, this is more restrictive than the typical action from Congress. If instead we assume a business-as-usual scenario that holds revenues and discretionary spending constant as a share of GDP, federal debt would be 7pp higher as a share of GDP by 2028 than our current baseline.
• 2. Lower growth and an adverse interest rate-growth differential. If interest rates exceed nominal growth when the level of public debt is high, the debt-to-GDP ratio might rise even with a large positive primary surplus. Lowering the growth of real  and nominal GDP and wages by 0.5pp in each year from 2020 through 2028 but holding all else constant, including interest rates—this is a realistic scenario in the case of low productivity growth—would have this effect. The resulting interest rate-growth differential would be in the same territory as the late 1980s and 1990s, when fiscal pressures led lawmakers to enact substantial deficit reduction legislation.
• 3. A recession in two years. Although we believe the odds of a recession remain low over the next couple years, a hypothetical recession starting in 2020, in which the output gap widens to 4% of potential GDP, could temporarily widen the budget deficit by 3-4% of GDP as revenues decline and countercyclical fiscal factors phase in. Although this scenario assumes that easier monetary policy would lead to relatively smaller deficits immediately following the post-recession period, federal debt levels would remain considerably above our baseline and rise to 110% of GDP by 2028.
• 4. A deficit reduction package. Perhaps the most striking scenario in this set is the most optimistic one, in which Congress passes a substantial deficit reduction program. In the early 1990s, deficit reduction packages reduced the primary deficit by about 1.5% of GDP over four years. Should Congress enact a similar program in the medium term, we estimate the federal debt would still amount to about 95% of GDP by the end of the decade.

To this all we could add is that scenario 4 is virtually impossible, and that #1 and #3 are synonymous, with a recession in 2020 (or sooner) now inevitable, the question then being just how and where will the US government find the room to add on the trillions in extra debt needed to bootstrap the economy out of what is likely to be the most severe contraction in decades, likely surpassing even the great financial crisis which saw China putting its own debt issuance apparatus into overdrive, an option which will no longer be available this time.

Goldman agrees:

As the 2020 presidential election approaches, the odds of meaningful reduction policies are likely to decline. We are not particularly optimistic about reform occurring soon after 2020, either, as public opinion polling suggests that the electorate does not currently view the deficit to be a particularly important  issue. Of course, the outlook at that point depends on the result of the next election for the White House and Congress. For the moment, however, there are few reasons to expect a shift in fiscal policy priorities in the near or medium term.

The conclusion is unfortunate: with no chance of the current debt trajectory realistically changing, the only question is just how optimistic will this most recent long-term debt forecast from the CBO end up becoming...

... and of course, if the current or future administration will eventually "grow into" the contextual situation that Goldman laid out as justifying the current fiscal outlier state of the US economy, namely entry into war.

Fonte: qui

Americans Live in a World of Economic Lies

The 3.9% unemployment rate is not due to employment. It results from not counting discouraged workers who have ceased to search for jobs because there are no jobs to be had.  If an unemployed person is not actively searching for a job, he is not counted as being in the labor force. The way the unemployment rate is measured makes it a hoax.

The government tells us that there is essentially no inflation despite the fact that prices have been rising strongly—the price of food, the price of home repairs, the price of drugs, the price of almost everything.  Two years ago the American Association of Retired People’s Public Policy Institute reported that the average retail drug price has been increasing at a worrying pace of 10 percent a year, and about 20 drugs have astoundingly had their prices quadruple since just December. Sixty drugs doubled over the same period. Turing Pharmaceuticals, headed by Martin Shkreli, is one of the most pronounced examples of this kind of behavior. The company bought a lifesaving cancer medication only to increase its price from $13.50 to $750 per pill. (See this) 

Yet Another Fabricated Jobs Report. Rising Real Unemployment in America

Incomes, of course, have not doubled.  In real terms incomes have declined.  Moreover, expenditures on medicines are a huge percentage of the budgets of the elderly and those on Medicare. According to the Kaiser Family Foundation, the average annual cost of prescription medicines for the elderly accounts for three-fourths of the average Social Security pension and for about half of the median income of peope who receive Medicare benefits. (See this) 

Real jobs have also declined. The jobs that the financial presstitutes  report to be unfilled are not jobs that provide a living. The BLS reported that the number of Americans working multiple jobs rose in July by 453,000, bringing the number of Americans who hold multiple part-time jobs to 8,072,000. 

Looking at July’s payroll jobs report again we see the Third World complexion of the US work force.  The alleged new jobs are concentrated in lowly paid domestic services:  temporary help services, health care and social assistance, waitresses and bartenders.  

There is scant sign of a vibrant economy, but high debt is everywhere.  Debt is growing faster than the income needed to support it. The US government is on course for another $1 trillion annual budget deficit. The federal, state, and local tax base has been decimated by the global corporatons’ export of high productivity high value-added manufacturing and professional skill jobs.  In the name of “free trade” the tax base for Social Security, Medicare, and public pensions has been given away to China and other Asian countries where labor costs are low.  The US global corporations make higher profits by shrinking the US tax base.  Neoliberal economists defend this absurdity as “free trade” that benefits Americans.

The millions of Americans whose jobs were given away to foreigners know full well that they have not benefited. They know the story told by neoliberal economists and financial presstitutes is a lie.  

The lies, of course, go far beyond the economic ones.  Russiagate, which has dominated the print and TV media and NPR since the last presidential campaign is a massive lie that continues day after day.  On August 3 the NPR presstitutes, for example, were smacking their lips over the prospect that Paul Manafort was on trial and might give special Russiagate prosecutor Robert Mueller a conviction that could lead to Trump’s removal from the White House. The presstitutes speculated that a convicted Manafort would tell on Trump in exchange for a lighter sentence. 

The NPR presstitutes did not reveal that Manafort was not on trial for anything related in any way to Russiagate.  Manafort is being tried on income tax evasion charges dating from a decade ago when he was a consultant to Ukrainian politicians.  There is no doubt but that these are false charges whose purpose is to coerce Manafort into protecting himself by making false charges against Trump.  If Manafort is convicted it will not be on the basis of any evidence.  Manafort will be convicted by the presstitute media which will convince jurors that Manafort is “one of those rich who don’t pay taxes.”

That President Trump permits this witch-hunt to continue, a witch-hunt that far oversteps Mueller’s Russiagate mandate for which not a shred of evidence has been found, shows how the presstitutes working hand-in-hand with the military/security complex and DNC have disempowered the President of the United States.  While Americans sit there sucking their thumbs, the coup against the President proceeds before their eyes.

*

Note to readers:   

The US government and the presstitutes that serve it continue to lie to us about everything. Today the Bureau of Labor Statistics told us that the unemployment rate was 3.9%.  How can this be when the BLS also reports that the labor force participation rate has declined for a decade throughout the length of the alleged economic recovery and there is no upward pressure on wages from full employment.  When jobs are plentiful, people enter the labor force to take advantage of the work opportunities. This raises the labor force participation rate. When employment is full—which is what a 3.9% unempoyment rate means—wages are bid up as employers compete for scarce labor.  Full employment with no wage pressure and no rise in the labor force participation rate is impossible.  

This article was originally published on Paul Craig Roberts Institute for Political Economy.

Dr. Paul Craig Roberts is a frequent contributor to Global Research.

The original source of this article is Global Research

Copyright © Dr. Paul Craig Roberts, Global Research, 2018

The Absurd U.S. Economic Model: $300 Billion In New Debt Just This Week

“The entire US national debt was around $300 billion when John F. Kennedy was President…” Here’s why it matters…

by Simon Black of Sovereign Man

I’m doing my best to take a few days off this week, and have the pleasure of spending time with some friends here in a fairly remote corner of Vietnam’s magnificent coastline.

This is one of the most pristine places I’ve ever been– a high-end resort nestled at the top of a mountain in the middle of nowhere overlooking Vietnam’s postcard-perfect Vinh Hy Bay.

I’ve traveled extensively through Vietnam over the years, from Hanoi in the north, to Saigon in the south, and all along the coast. And the country has always impressed me with its raw beauty.

But what’s always been even more impressive to me is how productive and industrious Vietnam has become.

Remember, this place is supposed to be Communist. And like all Communist experiments, this one nearly ended in economic catastrophe. Vietnam was among the poorest countries in the world just 30 years ago.

But in 1986, on the brink of economic meltdown, the government launched a series of sweeping economic reforms they called ‘doi moi’.

Suddenly it became possible for private individuals to start their own businesses, invest capital, and keep what they earned.

The economy started to boom practically overnight, and it’s been growing consistently at 6% to 8% annually for more than three decades.

The primary driver of the Vietnamese economy, of course, is production. Manufacturing. Exports. Etc.

In fact Vietnam is now a dominant manufacturer across dozens of industries and stands to gain if there’s a protracted trade war between the United States and China.

What’s also interesting about Vietnam is that the savings rate is one of the highest in the world– Vietnamese save an overwhelming percentage of their incomes to invest in the future.

So in other words, Vietnam’s economic model is based on saving and production.

This stands in stark contrast to the Western economic model which is based on debt and consumption.

In the United States (and much of Europe), for example, consumer spending comprises roughly 70% of all economic activity.

So consumption, not production, is the single largest component of GDP.

No one ever talks about American producers or entrepreneurs driving economic growth. It’s all about the consumer.

And savings rates in the West are appallingly low… sometimes even negative.

People go into debt to spend money they don’t have to buy things they don’t need to impress people they don’t like.

It’s totally absurd. Yet this is the primary economic growth model for most Western nations.

Consumption, of course, extends far beyond individuals.

Just look at government spending as an example.

The US government’s total debt level now exceeds $21 trillion. And just this week alone, the US government is issuing $300 BILLION in new debt.

To put that number in perspective, the entire US national debt was around $300 billion when John F. Kennedy was President of the United States.

Now they’re issuing that much debt in a single week.

Where does it all go?

The government spends trillions of dollars each year… and a lot of it gets wasted on some of the most comical misuses imaginable.

The National Institutes of Health, for example, spent $1,552,145 of your money to develop a video game that teaches parents how to feed their kids vegetables.

Then there was the $544,338 that the Justice Department spent to spruce up its LinkedIn profile.

And those are just two very tiny examples.

There are also really big, egregious examples, like that $2 billion Obamacare website fiasco.

Or the $1 billion that the Defense Department spent to destroy $16 billion of perfectly good ammunition.

This is all useless, wanton consumption. And it doesn’t take a rocket scientist to figure out the long-term consequences.

Countries whose economic models are based on savings and production will prosper.

Countries whose economic models are based on debt and consumption will suffer.

28 03 2018