The Striking Reason Why The US Just Spent A Record $429 Billion In One Month

Tyler Durden's picture

On Thursday morning the CBO released a surprisingly upbeat assessment of Donald Trump's proposed budget, calculating that it would cut the cumulative US deficit by 30% over the next decade, preventing the US debt from spiraling out of control (even further).

That however. may be an overly optimistic assessment, especially following the release of the latest monthly budget data, which showed that not only did the US deficit surge to $90 billion, far above the $38 billion consensus estimate, and a "NM" compared to the $6.3 billion budget surplus in June of last year, but the US also saw the biggest one month outlay on record, at $429 billion, 33% higher than the $323 billion in outlays one years ago.

What prompted this massive surge in outlays?

The biggest reason for the outlier print is that according to Stone McCarthy, outlays increased by roughly $60 billion in "other" items relative to baseline because the Treasury revised up its estimates of the subsidy cost of student loans, and to a lesser extent housing, it guarantees.

Here is the CBO explanation:

Outlays for the Department of Education rose by $31 billion (or 51 percent), because the department revised upward, by roughly $39 billion, the estimated net subsidy costs of loans and loan guarantees issued in prior years—a change much larger than last year’s $7 billion upward revision. If the effects of those revisions were excluded, outlays for the department for the first nine months of fiscal year 2017 would have fallen by $2 billion (or 3 percent).

 

Outlays for the Department of Housing and Urban Development rose by $29 billion, primarily because the department made upward revisions in June 2017, but downward revisions in April 2016, to the estimated net subsidy costs of loans and loan guarantees issued in prior years.

The cost of those loans is treated in the budget on a present value basis, not a cash basis and the Treasury periodically revises these costs. (It should be noted that the associated increase in outlays doesn't impact Treasury borrowing or debt under the debt limit.) If not for these special factors, Treasury would have reported another small surplus for June... however it did not.

On the revenue side, things were just as bad with the US Treasury collecting only $338.7BN, just 9% higher than the $330BN in June of 2016.

What makes the surge in the deficit especially surprising is that June is often a surplus month, as the Treasury receives large corporate and non-withheld individual tax payments in that month.

One theory explaining the shortfall in revenues reflects taxpayers delaying the recognition of income in 2016, anticipating tax cuts this year. That revenue should eventually be recovered. About a third of the revision was on the outlay size, with a large chunk due to changes in the estimated subsidy costs described above. Based on the CBO revisions, it appears that the deficit for the fiscal year, which has three months left, will be in the $650 billion to $700 billion range, if not even higher, mostly due to the surge in "subsidy costs of housing and student loans" guaranteed by the Treasury.

Combining these two means that YTD, the deficit jumped to $523.1BN vs $399.2BN last year.
While many analysts had a deficit base case for fiscal 2017 at roughly
$575BN (the year ends on Sept 30), the CBO recently revised its
projection for the fiscal 2017 up by $134 billion to $693 billion. Most of the CBO revision reflects weaker than expected revenues, which means it will be even more surprised when it finds out what is going on with outlays.

To summarize: what the unexpected surge in government spending means is that quietly and mostly behind the scenes, the student debt bubble has begun to burst, and the Treasury is "provisioning" for it in real time, with all US taxpayers once again on the hook.

Finally, since the $1.4 trillion and rising student debt bubble is expected to end up with discharges of 35% if not higher, it means that over the next several years, the budget deficit will be incrementally boosted by approximately $500 billion as America's taxpayers are once again taken to the cleaners, this time to bail out millions of liberal arts majors who for one reason or another just can't pay back their student loans.

h/t @SMRA

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Bubbette's picture

President Carter is the one that had the government take over student loans.  These loans need to be returned to the private sector where actually underwriting is performed to qualify the borrower.  This will shut off loans to many people and shut off the never ending pipeline of money to liberal colleges.  The result will be a massive drop in the cost of tuition and many of these fine institutions will be shown the door to banrkuptcy court.

Matthew John's picture

Well... we can thank Obama for Federalizing all student loans....

Jack Oliver's picture

They are gambling the big bucks on a world war which is looking less likely - they have met their Nemesis !!

After Russia's powerful display in Syria - the Zio/US has formidable opposition in their murderous 'control the world's resources' conquest !!

Scornd's picture

all wars are bank wars they profit either way

U4 eee aaa's picture

Only in government could cutting your deficit by 30% be considered a surprisingly upbeat event

Cash Is King's picture

Read it again U4, that's over a decade. Never gonna happen whether 3% a yr or 30!

FreeNewEnergy's picture

If the media and dems actually find a way to oust the Donald, I hope they figured out what they're going to do with the 150+ million pissed off, dissaffected people with guns and brains because the response from the conservative right is going to be somewhat robust.

Civil war? Nah. Total chaos.

Be a Boy Scout. Be Prepared.

KansasCrude's picture

Someone please explain how in the hell tax reciepts went up $9 billio with all the losses taking place in the employment area and write offs in business closures. Sounds like the typical BS we are supposed to gag down on an almost daily schedule from the con artists, pathogical liars, and grifters in the gubmint.   Off balance sheet and FED funny money are reported where?

If I really am honest with myself here I can't believe hardly anything they put out on the spending side or revenue sides these days it pretty much all smells like SHIT.    

creeko's picture

... AND we never went to the moon.

 

9-11 TV masterpiece theater...

 

What a list of fake shit we could make.

runnymede's picture

Thank goodness we have fiat money or we'd be in big trouble---

ThrowAwayYourTV's picture

It aint rocket science, man.

The fed prints a shit load of money and puts it out there. It doesnt make sense to print out a billion dollars and lend it out when you know it wont be worth a billion dollars when it comes back.

So, they print and print and print until the money aint worth a shit. Then they crash the system and call all the trillions and trillions back.

Now theres no money in the system and what money there is, the trillions and trillions they printed to lower the value of the money is back in their pocket and its worth 10 times as much as it was when they printed it. Screw the tiny 1. 2. 3% interest, thats a joke to them.

Thus! The money changers get very very rich by simply printing money out of thin air, lowering its value, then sucking it all back, which raises its value. Nice gig if you can get it.

 

Scornd's picture

and one day, we wake up and there will be no FRN. it will be replaced with the Banks Army.

Cassandra.Hermes's picture

ZH may wish to blame it on millennials student loan, because they are not Trump voters, but no, it seems delinquency rate went down, so please find the real reason.

https://fred.stlouisfed.org/categories/32440

JailBanksters's picture

In Keynesian Fashion, if you can't afford to get out of debt, you need more debt to get out of.

Totally_Disillusioned's picture

"After this, there is no turning back. You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes."

 

Morpheus - The Matrix

Manipuflation's picture

Kool-aid now costs 24 cents a packet at Wal-Mart.  That shit used to be much cheaper.

cherry picker's picture

I've been on ZH over 6 years.  At first I took everything pretty seriously.

But for many of the posters that put up these articles, like Phoenix Capital and more, the crash and Armageddon was going to come next day or day after tomorrow.

Once in awhile is fine, but damn it, 90% of the posts on this site is like that.

I wonder if some of these writers ever leave their houses?

vaporland's picture

broken clock, meet twice daily...

Lostinfortwalton's picture

Saw a salary survey for architects recently. One respondent, several years out, had a Master's Degree in Architecture from Harvard. He was making $15 an hour. His situation was not that unusual, either.

vaporland's picture

...bail out millions of liberal arts majors who for one reason or another just can't pay back their student loans

A bit hyperbolic and disingenous at best. Liberal arts majors are far from the only graduates who took out student loans, and are certainly not the only ones defaulting.

I imagine a lot of bad college loans went to STEM grads who were conned into pursuing those degrees, only to find that H1B visaholders depressed wages and job demand by the time they graduated.


Money_for_Nothing's picture

Most of it went to people who are close to unemployable. Worse it boosted their egos so that relatives could not talk them into doing anything useful.

God gets them motivated by hunger.

Scornd's picture

its alarming to people when u tell them that middle aged white males are undesireable in a bloated labor market.

animalogic's picture

The US & its tax payers have only themselves to blame for these situations.

Why: because education, health (& medicines) , pensions & housing are public GOODS. If you allow them to become merely "profit" centres, with the governement backstopping the loses of the profiteers they have facilitated in the first place, then naturally, the profiteers will game the system. Why not ? They could give a tuppney-fuck for any social "good". (they could give a fuck for society...)

Money_for_Nothing's picture

"only themselves to blame"
PT Barnum and Soros have some culpability also. If a woman is drunk, passed out, naked, legs spread, already violated at least once do-you-or-don't-you? Soros is on-that-in-a-New-York-minute.

Money_for_Nothing's picture

This article is a test. The Author is just trying to see how enlightened readers are here. Or the Author is naive (to be charitable). Lets just say a Government Agency had to catch up some numbers that had been suppressed for about eight years or more. (President Obama really just seemed like president Bush unleashed.) Numbers correction will happen with average global temperature series also when cap-and-trade finally dies. The end game of cap-and-trade was to be able to execute anyone nominally because they exhale carbon dioxide and couldn't pay a tax. They would smother you. Obamacare they do the same thing. Give you a disease and then refuse you treatment because you are worthless to them.

numapepi's picture

The student loan bubble is just new class welfare.

INTJ Economist's picture

That's all well and good except for the part about American taxpayers being on the hook.  That's not how it works.  Treasury banks with the Fed.  Fed creates dollars via keystrokes.  No tax dollars are needed to "fund" anything.  This is how it works in the 21st century.  Get on board.

Scornd's picture

i realized a few days agO that everythig the Govt does is under War fare rules. they can do what they want. they can sleep with you wife or sister too and no one can do anything about it. its a Feudal System