The Real Budget Deficit Was $1 trillon In The Government's Fiscal 2013

Someone asked me my view of the reportedly narrowing Government spending deficit. The fact is that the Government uses gimmicks in order to move expenditures "off budget" in order to hide the truth (imagine that...). Notwithstanding this, we can get a pretty accurate accounting of the actual cash in/cash out spending deficit by measuring the change in Government debt outstanding during any Fiscal Year period. To be sure, the total deficit runs in the several trillions, but this would be based on GAAP accounting of all expenses, including the accumulating entitlement expenses, which we know will never be paid.

I've outlined below why, even if you want to believe the Government's story that the deficit is narrowing, it really did not.

The budget deficit is lower this year for a couple reasons, all of them non-recurring:

1) We had a big one-time in tax revenues in December/January (remember the U.S. fiscal year starts in October) because of the tax increase in capital gains on Jan 1 triggered a wave of asset sales that generated a big jump in tax revenues. You can find charts using google that show this.

2) Removal of the Bush "tax holiday" for W-2 paycheck earners. This increased the general level of tax revenues. interestingly, the tax revenues started to decline a little over the summer and I saw a recent article that said States are seeing tax revenues from individuals decline. This clearly reflects the actual reduction in jobs/wages that is occurring.

3) One-time payments from Fannie Mae, Freddie Mac and sale of Treasury's GM stock. Non-recurring. self-explanatory EXCEPT, most of FNM/FRE income has been generated by accounting gains from both of them "marking to market" bad assets, just like the banks have been doing. I haven't studied it closely and I don't know if I will, but I would bet that FNM/FRE run into liquidity problems in 2014.

It would also make sense that Cerberus Partners is looking at buying a big stake in Fannie Mae. Cerberus took control of GMAC before GMAC went belly-up. Given they whiffed badly on GMAC, I suspect the same idiots there will repeat the same mistake again with FNM. But what does Cerberus care? It's not their money, it's the bone-headed pension fund managers that give Cerberus money to lose like that.

4) Taxes generated from real estate sales - the housing market is slowly imploding and I bet it really gets hammered in 2014.

5) We don't know to what extent budget games have been played in terms "on-budget/off-budget accounting." The truth is the only way to tell what the real spending deficit was is to see how much Treasury debt increased during a given fiscal year.

Now, here's the most interesting part: Using Treasury Direct, LINK, you can see that the Government debt increased $672 billion during FY2013. However, remember that right after Obama signed the temporary budget deal (after the 2013 FY), the Treasury debt jumped by $328 billion. This was money SPENT that was borrowed using the "tricks" Jack Lew said he would use during the 2013 fiscal year. It was debt that would have been issued in FY2013 but the Government couldn't issue it. SO, the real spending deficit was $1 trillion even. If you add back the FNM/FRE dividends, it was over $1 trillion.

So, you tell me. Is the spending deficit really as low as the Obama Government is reporting? I bet we'll see a spending deficit well in excess of $1 trillion this year because I bet that individual tax revenues will decline because of the economy.