Charting The US Fiscal Catastrophe

Tyler Durden's picture

With little fanfare, the November budget deficit of $150.4 billion was reported, which happened to be the worst fiscal November in the history of the US, and just out of the top 10 of worst deficit months ever, including the traditionally weak seasonal months of December, April and September (indicatively, the worst deficit month was the February 2010 $221 billion). The deficit was a major surprise to all those who had expected a pick up in income tax revenues. And as the charts below demonstrate, while there was indeed a modest pick up in tax collections, it was nowhere near enough to offset the surge in government outlays (even with interest payments still at near record low levels). What was also not broadly appreciated is that the cumulative debt issuance over deficit funding has hit a new all time high of $1,735 billion since our October 2006 starting point (4 fiscal years ago). And what is a bigger concern, is that the debt issuance continues to remain at almost exactly 50% over the deficit. Additionally we know that courtesy of Obama's latest stimulus for the wealthy (and everyone else) the latest projection for the 2011 budget deficit will hit $1.5 trillion (after it was just $1.1 trillion a few months prior). What this means is that should the US Treasury continue to issue 50% more debt than total deficit needs, by the end of fiscal 2011, the US will have issued another roughly $2.25 trillion in net debt. Granted this is a rule of thumb. But what it means is that the $900 billion in notional (not market) value of bonds to be bought back by the Fed through June will be woefully insufficient, and that as a result we expect that Ben Bernanke will be forced to monetize another $1.2 trillion in debt to continue with his course of monetizing every dollar of deficit spending, as he has been doing since the advent of QE2. It also means that unless something dramatically changes, through October 31, 2011, total US debt will be $15.9 trillion, up from the $13.9 trillion as of the end of last month, and will mean that the debt ceiling will have to be raised not only once, but likely twice in the next 12 months. We are now truly a banana republic you can believe in.

Chart 1: Cumulative US Individual Income tax revenues and debt issuance. Since the failure of Lehman, through November 30, 2010, the US government has issued $3.8 trillion in debt, and collected $3.6 trillion in tax receipts. Uncle Sam continues to fund over 100% of every dollar received from taxes with his own credit card, which is somehow still stuck at an APR of about 2%.

Chart 2: The same as above, but also showing the cumulative differential between the two metrics. We fail to observe any green shoots, or any improvement in the cumulative delta.

Chart 3: While the debt to tax collection metric is deplorable, what is far more scarier, and has very profound implications for future US debt, is that the cumulative debt over deficit differential not only continues to rise, but has hit an all time high. Forgive us if we laugh in the faces of all those who claim that rising tax revenues are a certain indication of economic improvement. Nothing could be further from the truth: the only "improvement" is short-term economic stimulus (with an ever declining half life), purchased on Uncle Sam's credit card. Should the recent acceleration in interest rates higher persist, we expect that very soon the Uncle Sugar APR will no longer be quite as attractive as it has been during this period of drunken sailor borrowing.

And if you are not scared enough by the above figures, here is Bill Buckler of the Privateer fame's condemnation of what anyone with half a brain realizes is pure, unadulterated fiscal lunacy (dictated in no small part by the same people at Goldman who are now in charge of monetary policy as well):

Before fiscal 2008, the US Treasury had only run an official deficit above the $US 400 Billion level once - in 2004. In the three years between 1998 and 2000, the Treasury had even claimed to have run budget SURPLUSES, even thought its debt climbed throughout the period.

  • In fiscal 2008 - the official Treasury deficit was $US 438 Billion
  • Ten weeks into fiscal 2009 - the Fed cut its controlling rate to 0.00 - 0.25 percent
  • In fiscal 2009 - the official Treasury deficit was $US 1.42 TRILLION
  • In fiscal 2010 - the official Treasury deficit was $US 1.29 TRILLION
  • White House projections for fiscal 2011 are for an official Treasury deficit of $US 1.5 TRILLION

In fiscal 2009 and early fiscal 2010, the Fed directly monetised an official $US 300 Billion of US Treasury debt. Between November 2010 and June 2011, the Fed plans to buy another $US 900 Billion worth. Nobody, including the Fed knows what will happen after that.

When looking at these figures, it is wise to remember that what is being “produced” here is the reserve currency of the world. This is why the US government has gotten away with this borrowing as long as they have. And it is also why the Fed has been able to accommodate them with non-existent official interest rates for as long as they have. But for how much longer?

That is the 64 quadrillion dollar question.

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TheGreatPonzi's picture

I've never seen a precise and accurate answer to the following question.

What prevents a government to lend itself money through its central bank? In other words, why does the US Treasury continue to organize auctions on its debt, when everyone, from Bernanke to Red Neck Repugnicant, says QE is not inflationary?

I don't want an answer such as "it creates inflation". I know it is supposed to create inflation, but I've seen absolutely nobody - including top economists - managing to explain the actual mechanism leading to inflation.

As the money lended by the central bank is repaid, and thus destroyed, there should be no more inflation created than through international auctions, where the money used to purchase this debt has usually been created out of nowhere too thanks to the magic of fractional banking.

zenon's picture

The money lent by the central bank is not destroyed. Unless you believe the gov. will start running surpluses.

Sean7k's picture

The US treasury has lent itself money before. During the Civil War, Lincoln had the treasury issue "Greenbacks" which were used to pay northern debt and pay soldiers. These bills were in circulation until approx. 1995. They were debt without an interest payment. 

They suffered the same problem of inflation. Dollar inflation is a result of debasement of the currency. In this case, there was no specie to provide value to this currency. Consequently, it was dependent upon "The full faith..." clause. When this faith floundered or where people began to discount it's value, because banks would not redeem in specie, dollar inflation reared it's ugly head.

Enter the present day, the continued creation of monetary substitutes are valued against our reserve wealth. As this wealth continues to transfer out of country (emerging economy investments), hoarding (savings),  offshore accounts, etc. , as our production capabilities are hollowed out and intellectual property is diminished, the value of the dollars are reduced. 

The continued expansion of substitutes has a smaller and smaller specie redemption versus the supply of money being fabricated through QE. This debases the dollar and makes it less valuable when attempting to buy goods denominated in other assets. Thus, we experience dollar inflation. 

Hope this helps.

slyhill's picture

GP. So the question is: how does "our reserved weath" get valued?

Thomas's picture

It's not just faith. Supposedly the ancient Sumarians understood the debasement of currency. Certainly Romans learned it not just from their clipping and debasement of their metal coins but also from sending their slaves into the mines to get more gold; both caused caused inflation. There is a brilliant essay on inflation from the 13th century. Inflation is as old as money. It doesn't require a conscious loss of faith; it just happens.

A particularly poignant example of inflation is the game Monopoly. You start the game thinking $100 bills are worth something. By the end, everybody has malinfested in gobs of real estate, the only bills that matter are the $500 bills, and everybody starts blowing up to end the game. This all occurs simply because people relentlessly go around the board and collect $200 every time they pass go. Of course, the money all came from the friggin' banking system. 

HungrySeagull's picture

Sometimes the surviving sharks.. er players emptied the bank in the Monopoly forcing one of two things to happen. Game ends or bank is kept on a ledger pad and repaid.


I have a feeling that the United States is keeping a one hell of a Ledger Pad.

jakethesnake76's picture

Yep thats what i was gonna say 100 become dollars almost equivelent as 1dollars and you must keep track at the end cause bank is broke then what really matters is how much you have relative to the other players .

Clancy's picture

The ancient masters of currency manipulation were the Ptolemies.  Ptolemaic Egypt used worthless copper coins whose value was established by fiat.  It was illegal for any other coinage to be used inside Egypt and outsiders trading at Alexandria had to convert their gold and silver to worthless Egyptian currency first.


That and the fact that they used the rest of Egypt as a tax farm guaranteed that they were financially fuxored by the time Rome came banging on their door.

goldfish1's picture

Talking about war as in the Afghanistan War, although

Sarah Palin in Haiti is Page One,

Nothing on this: Richard Holbrooke critically ill after heart surgery

Also, SFChronical has it in the "Business" section.

Black Swan?



Red Neck Repugnicant's picture

tick tock

tick tock


It's not inflationary, at all.  Those bonds that the Fed purchased from the banks (QE2) were the same as cash to those banks, anyway.  If the banks had wanted to convert those bonds to cash and diffuse/lend it into the economy, they could have instantaneously

The money supply stays the exact same! And if the cash reserves that those banks hold at the Fed begin their inflationary push, the Fed can simply increase reserve requirements to stop that cash from diffusing into the system - in 15 minutes.

Hey!  I've got another question for everyone with less than 45 cans of green beans hidden under their porch...

When the Fed buys over a trillion in agencies, where does all the interest yield on those securities go?


dnarby's picture

The money supply stays the exact same!

Really?  I'm not convinced

And if the cash reserves that those banks hold at the Fed begin their inflationary push, the Fed can simply increase reserve requirements to stop that cash from diffusing into the system - in 15 minutes.

And what do you think the banks will have to do to raise reserves?  They will have to SELL ASSETS.  Who's buying?  The Fed?


Red Neck Repugnicant's picture

Well, I suppose the Fed could buy assets since it already does.  

Or the banks could simply borrow funds from each other to keep their reserves at required levels. 

Whatever path they choose, when reserve requirements are increased, less cash is being diffused into the system.  

But, to your point, the banks are sitting on mountains of cash.  It's just sitting there.  Doing nothing, except waiting for the economy to slowly turn and anxiously waiting for yield. And it's also waiting to be used against more write-downs, which will be taken at the appropriate time. 

As the economy turns, that cash begins to seep out into the system, finding better yield than treasuries.  When the Fed thinks that too much cash is pouring out, it can shut the spigots.

Don't fuck with the masters of the universe.  You'll loose, even with your ammo.

Another question:  If there are over $10 trillion in asset write downs still not accounted for, and the Fed pumps $2 Trillion into the system, is this indicative of an economy facing inflation or deflation? 

pcrs's picture

The government has created a huge amount of make work jobs out of thin air. These people are paid 'real' money, fresh from the FED. They will buy stuff with it and it will be deposited in a bank. This money is not directly stolen from productive tax slaves, but borrowed from the FED, who created it from thin air (indirectly stolen from the human resources). 

I can not imagine the gvt ever running surpluses to pay back debt. If history is guide debt will always increase. The dollar lost 95% of its purchasing power since 1913, something must have been inflating. They will move your income to a higher tax bracket.

dnarby's picture

Either he can't get it, or he does get it, and is intentionally obfuscating the issue.  Probably another Harry Wanger alias...

WaterWings's picture

Cass Suntein's hotseat goombas.

jakethesnake76's picture

Plain truth is money is labor whether that is used to buy a product or pay more labor, so if we lived in a big co-op and each labored and traded our currency whatever it was (doesn't matter) and some banker  whether Government or not just started making  money without coming over and trading you or me labor for it the he or it is STEALING no different than if some punk started making it in his basement. Tell me thats wrong ? 

call me ahab's picture

"And it's also waiting to be used against more write-downs, which will be taken at the appropriate time."

the appropriate time???  When should that be?  Maybe all business should have the the luxury of altering accounting rules to stay solvent and then change them again-  when convenient (or in your words- at the appropriate time)-

what a buffoon 

Red Neck Repugnicant's picture

the appropriate time???  When should that be?

It will be done gradually over time, so the entire banking system doesn't go instantly insolvent.

I'm not saying it's fair, nor comparable to real world business.

It just is what it is.  

revenue_anticipation_believer's picture

"Either he can't get it, or he does get it, and is intentionally obfuscating the issue.  Probably another Harry Wanger alias..."  

Red Neck, i think DOES get it...his comments have a depth of understanding, and breadth too...Agenda?  

Not that definition.... enough on the Ad Hominem analysis, the question is MERIT...there is important value added, at a high standard worth pondering, rather than a mere knee jerk rejection of themessage and the messenger...

We need to have some Devils Advocates here on ZH, not a mere syncophant members of the choir..

Calmyourself's picture

Many of these troll commenters have patterns. TPTB are afoot, a nudge here and a nudge there..  The leftist press is very, very coordinated same phrasing same nudging into group compliance within existing paradigms or gradual movement into another.  Saw a throw away article in Slate about abandoning the $100 bill a few days back, preparing the sheep for a new pattern of compliance..

Double down's picture

He is right.

The issue is: what does the position mean?

He describes the mechanics of the public-private obfuscation, the critique of which is one of ZHs' strength.  I for one think he is correct.

I have few questions given the mechanics of this slight of hand. 

What are the costs, and where are they / when will they be recognized?  Can they be deferred indefinitely or can capital controls (raising the reserve requirement of primary dealers) place a ceiling on the money multiplier once the economy truly recovers?

I think we have to consider the fact that printing money in this manner may not lead to sustained inflation and that the FED may in the end be the sole owner of all US liabilities.  We know what country has done that before. 

Through the continuum of realization that this is the destiny of the custodian of the reserve currency the real question becomes what positions do other other players assume? 

If US liabilities are realized to be merely an accounting plug this fossilizes the treasury debt markets.  Considering the alternatives that seems to be a an acceptable option for the American status quo. 

Given there is no unit of measure for trust nor for credibility I know what I am doing.




IQ 145's picture

 If it's not inflationary, why is he doing it? Is he just going to do it until he needs glasses? He seems to think it is inflationary; that is what he has stated; maybe you should explain to him where he went wrong ?

blunderdog's picture

Here's an oddball idea:

It's kinda like Reagan's approach of outspending the evil commie Russkie empire.  Pump so much money all over the planet that eventually, the other economies with any difficult-to-sever financial dependence on the dollar (thus the entire industrialized world and all the developing exporters) break first.

Then when other governments break under the strain of a dollar-driven global inflation, propose the "solution" of a new currency, maybe even gold-backed.

pcrs's picture

I think they print money for the same reason every other counterfeiter prints money: to spend what they have not earned

They just have more eloquent people to present it.

IQ 145's picture

 Yup. That's why governments have these fiat systems; it's all very simple, really.

blunderdog's picture

Nah, not buying that.  If the government itself were doing the printing, I'd agree.  But the Fed is made up of BANKS. The entire shadow-banking infrastructure only existed to protect the holders of vast amounts of money in the first place.

The owners of the banks had more money than anyone else on Earth.  I guess if you want to say they went on a crack binge and blew it all gambling and now need more, I see the case.  But I don't think it's sufficient explanation. 

I think the whole thing is a Hail Mary pass.  It's so crazy it just might work.

flacon's picture

Politicians and bankers know they do not have what it takes to make it on their own merits, which is why they created such an obfuscated, elaborate scheme that keeps their pockets lined and the voters "happy" (by providing lots of "social programs for free"). 


Just look at Joe Biden, do you think he is even capable of holding a McDonalds job? Of course not. He's a total dunce. 

Golden monkey's picture

I'm far from being sure that Biden can even hold is cock up...

That's just another goldless headless chicken.

breezer1's picture

i agree. people will welcome global governance over destitution. those who don't will be called terrorists and dealt with accordingly. all hail the nwo.

A Man without Qualities's picture

It doesn't actually sound that oddball.  The Fed has a big trump card, which is the reliance on short term Dollar funding, which they control both through interest rates and the desire to lend in the first place.  They flood the world with liquidity, generate inflation, then they withdraw it, causing massive defaults.   Then they go round buying up assets on the cheap.  It's the oldest trick in the book.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."


Thomas Jefferson (attrib.)

revenue_anticipation_believer's picture

nothing odd ball about it....back in 1982, just as the South American bust, repudiation of debt payment to the THEN 7 big banks BANKRUPTED ALL THOSE BANKS in 1984....

it was just last year, one of the members of the 1984 Fed, now working for Nouma Japan, revealed just THAT, in 1984 the FED and those banks covered up the bankrupcy, re-funded the their reserves, and THAT debit to the fed wasnt paid off til 1991....

Meanwhile, the excess wealth effect did indeed finally 'break' the USSR, broke their military spending program, broke their ability/will to resist the physical breakup of the UNION into the various 'East Block' countries, including East Germany (the DDR, remember)...

yes, it HAS already been shown, that when 'panic waves' 'risk off' occurs, the flight is BACK TO THE USA has already been shown that China, Japan, others that have surplus funds from World Trade, they end up with DOLLARS....

and the excess DOLLARS, in China...just as in Japan 1988...the FEAR THAT THEY WILL YANK, will cash in....etc...never happened in 1988 by Japan, nor will happen by China 2010...

Yes, " when other governments break under the strain of a dollar-driven global inflation, propose the "solution" of a new currency, maybe even gold-backed....."    that currency of trade/commercial activities will be the USA dollar WORLD WIDE.

Money = DEBT,  now we All KNOW THAT!  and who has the absolute most debt = money....?? the USA...and who can control all the REST of the World money via debt swaps, etc 'notational amount $600 trillion'  and how much of the forex 3 trillion/day is effectively DOLLARS or dollar-tied, in actuality..





blunderdog's picture

Ok, on the third reading, I'm beginning to follow.  I have some more digging to do.

Much obliged, sir.

blindfaith's picture

all good points  revenue_anticip...
, but there is one point that is off.  "Meanwhile, the excess wealth effect did indeed finally 'break' the USSR" , what did the USSR in was $8.00 oil not excess wealth (or Ronald Reagan), but the lack of incoming profits from oil.  Oil sales kept much of their economy going and the $8.00 a barrel pulled the plug on everything.

Everyman's picture

Not quite asshole (RnR).

Look at the price of Gas, Milk, food, etc.  All that is "price inflation" and it PREcedes "dollar inflation/defaltion".  However you want to argue, the money is worth less, and it costs more to buy shit will shitty fiats.  Welcome to the new "this time it is different".

No matter what you call it, it is all the same: crooked, corrupt, contemptable and just palin wrong.

You are another asshole out there with no answers and just gets by on his blatant arrogance.  You offer nothing to the discussion at all except for mental instability.

Red Neck Repugnicant's picture

If QE2 is inflationary, can you explain why the DXY has increased since QE2 commenced?

Increases in commodity prices is due to the dollar carry trade. 

Increases in gold/silver is due to worldwide currency paranoia and debasement (not just US$), fear, rumors, speculation and short squeezes.

tmosley's picture

You're on a real streak, aren't you?  Using the DXY to measure inflation is like using a fast melting stick of butter as a ruler.

Why EXACTLY is it that you think that the dollar carry trade came into existance?

Red Neck Repugnicant's picture

Why EXACTLY is it that you think that the dollar carry trade came into existence?

Because our cost of money is near zero. 

Listen lady...

In the past 24 hours, I've put you on a rotisserie, smeared you with barbecue sauce, fired up the flames, and stuffed an apple in your mouth.

For you to continue questioning me from thread to thread is totally ridickerous. Quite frankly, I've never seen someone repeatedly fall on their face like you - you must be some sort of full-time masochist furiously typing away while your dominatrix runs to PetSmart to buy you food. 

There wasn't one part of that conversation about agencies, par and interest income that you got right, and yet you kept going, and going and going. 


I'll start answering your questions as soon as you explain why paying 2%-3% over par is a "guaranteed loss" of money.  And don't tell me that all those agencies are worthless, either.  If that was the case, I'd suggest you start buying default swaps on million dollar mansions in Newport, because PIMCO would be insolvent.    

tmosley's picture

Pfft.  Sure, you were right in everything you said, and I was wrong in everything I said, but only if you substitute your false perceptions about what I was saying.  Remember, when you didn't know the difference between price paid and current market price? 

The only way you "win" debates is by shoving words down other people's throats, and pretending like the comments and positions YOU ascribed to them really were theirs.

Also, you now seem to be under the impression that I am a female.  Again, this shows your extreme lack of reading comprehension.

Red Neck Repugnicant's picture

Remember, when you didn't know the difference between price paid and current market price?

WTF are you talking about? 

Listen lady, I'm done with you.


tmosley's picture

Best find yourself another website then, Illiterate.

Everyman's picture

Csan you explain a 25% increase in Gasoline in one month???  How is that NOT inflation ass gas?

You are a disaster as a fiscal, monitery, or economic analust.  YOu have NO standing and your facts are like those of "the Bernake" and I really hope somebody romoves that asshole and others like him from our planet.  YOU included.


Ass gas.

Red Neck Repugnicant's picture

Csan you explain a 25% increase in Gasoline in one month???

I'm not aware of gas increasing by 25% in one month. 

But that doesn't matter.

Just because the price of something rises, does not mean that it is inflation, or the fault of Bernanke or the policies of Obama. 

During the month of November, pumpkin pies increase in price.  During the month of February, roses increase in price. The market value of a one year old Toyota fluctuates all year long. Lots of things are seasonal, while other things are just responding to temporary supply/demand dynamics.     

Not every price increase is Bernanke's fault, even if the exact cause of the price fluctuation is unknown to you or me.

By the way, you're very angry and extremely emotional. Are you ok?


tmosley's picture

I see.  So December is suddenly the peak month for gas usage.  That's your excuse?

Why don't you get back to sucking Bernenke's dick?

Bring the Gold's picture

Why don't you get back to sucking Bernenke's dick?


I see no evidence to suggest he ever stopped.

Everyman's picture

They are defninatly benny's fault if it is bacause of currency debasement.  ALL the charts are showing that, and that is the monster he has created and will engulf all.  The QE's don't matter anymore because you simply cannot keep printing money to pay for the previous debt.  Hell what we on here 3 or 4 or 5 bailouts now with all the QE's and POMOs?

It is currency debasement and morons like you don't get it.


Go tap dance in a box of broke glass you asswipe.

Herd Redirection Committee's picture

There comes a time where you want to give someone the benefit of the doubt, and there comes a time where you just have to admit some people are paid Internet trolls.

Red Neck and Harry Wanger are paid internet trolls, disinformation providers, agents provocateur.  Hope they are paying you a lot to do a below average job!  Not to mention you are selling out humanity, congratulations. 

Red Neck, did you ever see 'They Live' where its explained "Most people just sell out right away"???  They were talking about you.

PsychoNews: Filtering through the Disinformation every day.

Everyman's picture

True, most do sell out right away.  "They Live" is one of my favorite flicks.

The sellout

The Revelation

We are now at the revelation of our finacial economic system. 
"They Want".



G-R-U-N-T's picture

Hm...Sun glasses that see reality. I like his sarcasm "It figures it would be something like this"...a reaction that I would probably have.