On Wednesday, the Congressional Budget Office released its Monthly Budget Review for June. It estimated that June's deficit was "only" $69 billion, down from $94 billion last year, and that the deficit through nine months of the current fiscal year is $1.005 trillion, down from last year's $1.087 trillion.
June's single-month improvement -- or more properly stated, its less disastrous result -- is probably legitimate, because collections have picked up a bit. But, as I noted in April (at NewsBusters; at BizzyBlog), the reported year-over-year deficit reduction, such as it is, has nothing to do with anything resembling control of government spending.
What follows was my explanation at the time, which still holds, and which you will more than likely not see in any media coverage of the government's financial situation when the Treasury Department releases its official monthly statement next week (also see the chart below the jump which shows what the deficit really is after adjustment):
Most of the general public believes that the government is reporting its results on a cash basis, i.e., that "receipts" means "money that came in" and that "outlays" means "disbursements." Until early last year, with one very small exception, that was the case.
But that's so pre-Obama. Since Treasury converted TARP and other bailout programs (with the exceptions of Fannie Mae and Freddie Mac) to Net Present Value accounting last year, this is how things roll:
- When the government "lends or invests" in banks and auto companies, the monies disbursed are treated as "investments," and are included in "outlays."
- Assuming no impairment in value or collectability, there are no receipts when the original amounts "invested" are repaid. Interest or dividends received are treated as "receipts" (euphemistically called "transfers from the Federal Reserve" by our oh-so-transparent Treasury).
- But if it looks like some of the "invested" funds won't be repaid, the government will write down the value of those investments to what it thinks will be repaid.
- If it overestimates the impairment, it revalues its investments upward, and reduces reported "outlays." This is what happened in March, to the tune of $115 billion.
In essence, what happened is that the administration pushed as much "bad news" (asset writedowns) as it could into last year's financial reporting, since last year was going to be a disaster no matter what. But since they overdid it with the writedowns last year ("Gosh, how did that happen?"), they can make this year look better than it really has been.
With that explanation as background, here is a comparison of what CBO presented with what things really look like when the $115 billion above is put in its proper place, i.e., last year (changed line items are in red boxes):
Real spending is over 6% higher than last year's already ridiculous total. The adjusted deficit after putting the accounting estimate described above where it belongs, has increased by over 15%.
This will be important to remember, because if the Obama administration continues to suffer from its "Recovery Summer" delusion, you can expect to hear the President and his apparatchiks claim that they are already starting to reduct the deficit, and their statist-compliant establishment media buds to relay the "news" without skepticism. The truth is that they're reducing nothing -- except, the longer their fiscal mismanagement goes on, our capacity to respond to their continually building disaster.
Cross-posted at BizzyBlog.com.