FISCAL/MONETARY UPDATE – EXTRA EDITION ! – US DEFICIT ACCELERATING, BUT THERE’S MORE TO THE STORY !
It’s worth another extra edition of our normal Semi-Monthly Fiscal/Monetary Update because it was just announced on Friday that the US operating deficit for February was up sharply from a year earlier. It is still widely expected that the deficit will be around one trillion dollars this fiscal year ending 9/30/19, though that expectation seems in jeopardy as the higher numbers come in.
We’ve written extensively that the actual debt is increasing much faster than the “operating” cash flow statement implies. Some uninformed observers have said that this is just a question of short term working capital changes which even out over a number of years. The facts are (1) this phenomenon has happened almost every year. (2) Over the last decade, the increase in debt, above and beyond the total of annual deficits has amounted to a total over THREE TRILLION DOLLARS. That’s $3,000,000,000,000. A lot of zeros. (3) It is a result of “Intragovernmental Borrrowing”, which doesn’t run through the annual operating budget. Specifically, as of 9/30/18, there was about $6 trillion of “Non-Public Borrowing”. 51% of that is from the Social Security Trust Funds. 17% from Military Retirements and Health Care Funds, 16% from Civil Service Retirements and Disability Funds, 6% from Medicare Trust Funds, and 11% from other Trust Funds. So our legislators are hollowing out the various funds that should be safely set aside to meet their intended purposes. Before we leave this subject, it is important to know that certain observers have opined that the US is not really in debt by $22 trillion, it’s only $16 trillion, a much lower percentage of our GDP, not nearly so dangerous. After all, we owe that $6 trillion to “ourselves”, the implication being that it doesn’t have to be honored. Tell that to the social security recipients, military veterans, civil servants and medicare recipients.
We provide below a table showing the most recent monthly deficits and increase in debt. You can see that in the fiscal year ending 9/30/18 the monthly deficits totaled $779B, but the debt increased by $1.27T. We say again: this is not a one year phenomenon. Three trillion, over ten years, has been “borrowed” from various trust funds. This year, through February, the operating deficit was $234B in February, up from $215B a year ago. Cumulatively the deficit for the year through February is $544B, up 39.1%. Relative to the increase in debt, it is up $599B cumulatively, actually decreasing by 2%, but still on track to run something like $1.3T for the year versus an advertised estimated deficit of about $1 trillion.
Lastly, it should be clear to all of us that both political parties are already in full “positioning” mode for the 2020 election. There will be no substantive improvement in the fiscal/monetary position of our country, especially since that would require reductions in entitlement, defense, or interest rate spending, none of which will occur. By the end of fiscal 2020, at 9/30/20, the total debt will be on the order of $24 trillion and growing. The financial, social, and political implications of that reality have yet to play out.
Roger Lipton