Though its $1.4 trillion red-ink result was mostly known well ahead of its final issuance, the Treasury Department either conveniently got its year-end accounting work done in time for a Friday afternoon release of the final Monthly Treasury Statement, or held it until that time. Last year's report was released on Wednesday, October 15.
The final statement shows receipts of $2.105 trillion, "outlays" of $3.522 trillion, and a "deficit" of $1.417 trillion. That is $962 billion higher that last year's "deficit" of $455 billion.
The terms "outlays" and "deficit" are in quotes for reasons I will explain in this post.
There is good news and bad news about the reporting on the results by the Associated Press's Martin Crutsinger. The good news is that after at least three months of obsessing over how the wars in Iraq and Afghanistan were contributing to the massive increase in this year's "deficit" compared to fiscal 2008 when they have been almost completely if not totally irrelevant (here, here, and here at NewsBusters; here, here, and here at BizzyBlog), Crutsinger correctly dropped them from the discussion. Of course, that means he was repeatedly wrong to cite those wars or even defense spending as a whole as a contributing factor in the first place. But don't wait by the phone for Martin's apology.
The bad news follows.
First, Crutsinger didn't explain that an accounting change having nothing to do with fiscal frugality was probably the major reason why the "deficit" came in lower than the $1.75 trillion he cited as the administration's February prediction. Additionally, though it was an ideal opportunity to do so, he didn't inform readers that the reported "deficit" is nowhere near the amount by which the national debt increased during the fiscal year.
Here are key paragraphs from Crutsinger's report that apparently go final until Saturday morning:
The federal budget deficit has surged to an all-time high of $1.42 trillion as the recession caused tax revenues to plunge while the government was spending massive amounts to stabilize the financial system and jump-start the economy.
The imbalance for the budget year ended Sept. 30, more than tripled last year's record. The Obama administration projects deficits will total $9.1 trillion over the next decade unless corrective action is taken.
As a portion of the economy, the budget deficit stood at 10 percent, the highest since World War II, according to government data released Friday.
President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling. But economists worry the government lacks the will to make the hard political choices to cut spending and raise taxes to get control of the imbalances.
Administration officials noted that as large as the $1.42 trillion deficit was, it had been projected to be even higher. The administration forecast a $1.75 trillion deficit when Obama sent his first budget proposal to Congress in February, a figure that had been trimmed to $1.58 trillion in an administration update issued in August.
The lower figures reflected in large part the fact that spending from the $700 billion bailout package turned out to lower than originally anticipated.
.... Failure to curb runaway deficits could trigger a financial train wreck that would push interest rates and inflation higher, and send the dollar crashing if foreigners suddenly started dumping their holdings of Treasury securities.
I must cite a few things before getting to Crutsinger's key omissions:
- Crutsinger's first sentence acts as if the government really has given the economy a "jump-start." American workers who have continued to lose jobs to the tune of hundreds of thousands per month are surely wondering where the evidence of a jump-start is.
- Note the reference to "the Great Recession," capitalized, in the fourth paragraph. Though I have seen usage of the term pick up elsewhere since early this year, I believe this is the first use of the term at AP, and it certainly is by Crutsinger when covering Treasury's monthly report. I believe this is an attempt to establish a historical marker, in the optimistic hope that it will be understood as the Great Bush Recession, especially if it is ultimately declared to have ended during the third quarter. Readers at BizzyBlog know that pinning the recession solely, or even mostly, on George W. Bush, who nonetheless contributed to it, is absurd. I have been saying so since early July 2008.
- Also note the reference to "hard political choices" and "raising taxes" that same paragraph. I sense that the press is getting ready to tell us, "Oh gosh, he really hates to do it, but Dear Leader is going to have to raise taxes on everyone."
- His opening mention of the year-over year decline in receipts understates its significance and incorrectly blames it entirely on the recession. Part 2 will deal with that matter separately.
Now to Crutsinger's two big omissions.
The "deficit" is as "low" as it is because effective with April's Monthly Treasury Statement, the government began accounting for its "investments" in financial institutions, General Motors, Chrysler, and other entities on a "net present value" (NPV) basis. In other words, even though lots of money has been laid out, that money is not part of "outlays." At the time of the change, the impact was to reduce "outlays" through March 2009 by over $175 billion.
Since then, the government has laid out additional billions first to get GM and Chrysler to limp into bankruptcy, followed by even more billions to help the companies emerge from it. NPV accounting requires you to write down such "investments" to their realizable value. I haven't seen any evidence that any such writedowns, which would serve to increase the reported deficit, have occurred, even though almost no one believes that Uncle Sam will ever see a full return of all of the money has thrown at the two companies. If someone is aware of a writedown, I'd like to know about it.
The bottom line is that, even after considering repayments of TARP funds made by some banks, the reported "deficit" would have been a lot higher than $1.42 trillion had the government not moved to NPV accounting. Though NPV has its place, it never belongs in what it supposed to be a cash flow statement.
The second omission has to do with a problem that I have begun calling the "unreported deficit." It has admittedly been present for years, but it has ballooned to gigantic levels during the past two fiscal years.
In normal bookkeeping, you would expect the change in the national debt net of cash assets to be equal to the amount of surplus or deficit reported. But the U.S. government doesn't do things the normal way, and hasn't been since LBJ made Social Security part of a "unitary" budget in the 1960s. For the past 20-plus years, the reported "deficits" were lower than the increase in the national debt largely because the rest of the government has raided Social Security surpluses and spent the money on other things. This year, though, the Troubled Asset Recovery Program (TARP) and other items were added into the "off-budget" mix.
The past two years' unreported deficits have been bigger than the reported "deficits" by stunning amounts (go here to verify the numbers that follow):
- During fiscal 2008, the reported "deficit" was $455 billion, while the national debt increased by $1.017 trillion ($10.025 trillion minus $9.008 trillion) -- a $562 billion difference between reported and actual.
- During fiscal 2009, the reported "deficit" was $1.417 trillion, while the national debt increased by $1.885 trillion ($11.910 trillion minus $10.025 trillion)-- a $468 billion difference between reported and actual.
These differences are now so big that they really shouldn't be ignored by reporters genuinely interested in informing readers and viewers about Uncle Sam's true fiscal situation.
Crutsinger, of course, did ignore it. I expect that he and the vast majority of his establishment media colleagues will continue to do the same. From this point on, I don't plan to, especially given that even the reported national debt doesn't fully reveal the true extent of this nation's financial peril.
Cross-posted at BizzyBlog.com.