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Uncle Sam: $407 billion in the hole

Tuesday, September 9, 2008, 9:44 PM

NEW YORK (CNNMoney.com) -- The budget deficit will jump by $246 billion to $407 billion this year, the Congressional Budget Office estimates in a report released Tuesday.

"Over the long run, growing budget deficits and the resulting increases in federal debt would lead to slower economic growth," the agency said.

The budget deficit shot up 153% from last year's shortfall of $161 billion. The government's fiscal year ends Sept. 30. The agency attributes the jump to "a substantial increase in spending and a halt in the growth of tax revenues."

That drop in revenue is driven in part by an estimated 15% decline in corporate tax receipts.

The CBO said it expected the deficit to exceed $400 billion - or 3% of gross domestic product - for each of the next two years if current policies remain in place. It also forecast several more months of "very slow" economic growth.

The agency's latest estimates do not reflect the Treasury announcement this weekend that the government would temporarily takeover Fannie Mae and Freddie Mac, the two government-sponsored enterprises that form the backbone of the mortgage market.

An $161 billion increase is pretty dramatic, but it's nothing compared to next year.  At that time, I expect us to vault from $408 billion to close to $750 billion, due to a combination of continued war spending, as-yet unannounced stimulus programs (such as extension of unemployment benefits), the Fannie and Freddie mess, plus a couple of other bailouts (probably in the auto industry), and a larger-than-expected decline in tax receipts.

Which means that the CBO statement that next year's deficit, "will exceed $400 billion," is kind of like saying "we expect high tide to come after low tide."  Um, sure.

I post this because I am fixating on the ability of the federal government to borrow all it wants next year.  I am beginning to have my doubts.  What if they can't?  Life will change quite dramatically in a very short amount of time.

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3 Comments

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Why the Dollar rally?
Chris, Any idea why the dollar has been rallying? I thought once it was official Ben & Henry were going to print a fresh $0.3T to $1T the dollar and US treasuries would tank. While foreign currencies may be weak I am surprised people believe they're worst than the USD, which is now backed by those mortgage backed securities. While scratching my head I was wondering if people are shorting the dollar and/or it's under a short-squeeze? Is it demand for the dollar due to a margin call and/or attempting to de-leverage their portfolios? Then I read this article which claims it may be due to the Saudi's pricing of oil to boost confidence for John McCain. http://www.financialsense.com/Market/wrapup.htm As a result I am now more confused than anything. I'm still expecting the dollar to take a dive. One other thing... are we experiencing deflation now? The M2 and MZM money supplies are clearly at the upper grip end of the "hockey stick" exp curve. Will M2 and MZM level off or fall during a deflation period? House prices falling and mortgage defaults alone sure do appear deflationary here in San Diego. BTW, you have an excellent site. Thanks/bearing01
john50's picture
john50
Status: Bronze Member (Offline)
Joined: Sep 2 2008
Posts: 74
USD Dollar Rally - Near a short term end?
[quote]Any idea why the dollar has been rallying? [/quote]
Hey Chris, you are doing such an awesome job putting this financial mosaic together into a comprehensive picture. Hope you don't mind my 2 cents? I am confident that there could be 50 opinions to this question, however I have confidence my evidence is compelling. (graphically more so than verbally).

The USD Index has been falling since 2001 in a predicable Elliot wave impulse pattern, inside a declining channel, and it needs to fall further to complete the 5-wave cycle low below 0.700 Dollar Index, "DX"

The decline is a tidal result of poor fundamentals, excess dollar inflation, and high debt leading to a negative global view of USD strength. The decline has not finished, it just went a bit too far and too fast in typical wave (3) cycle fashion and needed a corrective breather before continuing down. We are likely at the turning point this week, if not this next day. (Wed Sept 10) From a different angle, more money has been seeking refuge or hedging in the EURO, but has taken it too high as the "Anti-Dollar", where it needed a corrective breather, same could be said for Oil or Gold.

March 17th represented a turning point from completion of wave.(3) to start corrective w.(4), and that A-B-C counter-trend rally is just finishing its count now this week, as the w.5 of 5 of w.C is within a day or so of exhaustion around 1.4000 EUR/USD. Then the larger down trend in USD Index, DX, will resume in wave.(5) to test the high above 1.6037, with the first stage at least taking back 38.2% or more of the dollar gains. This movement is 90% correlated in Gold and Oil chart corrections.

Want to avoid dollar depreciation? Try a 50/50 balanced hedge. Cover you dollar exposure with equal part of EUR long (buy EUR/USD, or sell CHF/USD). When one goes up the other goes down, and you stop losing buying power. The same principle can be applied using options, ETF, or switching half your brokerage currency base. This week is optimum for making the adjustment while USD is strong because it buys more of the cheaper hedge Euro. Why make 10% in trading only to lose say 10% in devaluation. Or if parked, why not protect against risk of USD depreciation?


John

Expect the best - Prepare for the worst.
http://www.can-offshore.com
TnAndy's picture
TnAndy
Status: Member (Offline)
Joined: Jun 2 2008
Posts: 4
"Budget Deficits"
I keep hearing this figure of a "budget deficit" tossed around......why is it no one talks about the ACTUAL deficit rather than some smoke and mirrors number ???? Go to the US Treasury website Debt to the Penny http://www.treasurydirect.gov/NP/BPDLogin?application=np Enter the 1st of Oct 07 as a start date ( start of this fiscal year ) and use the current date on the end side.....subtract the start figure from the ending figure and you see we are about 660 BILLION more in the hole today than the start of the fiscal year. 660 BILLION.....not 161, or 250, or 400, or anything close to the figures I see tossed around by the various media when they rarely choose to address the issue at all. We are on track NEXT year for our 1st TRILLION dollar year. It took 200 years to hit the FIRST trillion of debt ( around 1980 ) and now in less than 30 years, we will manage to do that in ONE YEAR. Looks a lot like a hockey stick to me.

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