According to the Congressional Budget Office, the U.S. federal government’s spending in February exceeded revenues by $223 billion. This staggering number is the largest American monthly deficit in history, and actually exceeds the entire U.S. government deficit for all of 2007, just prior to the onset of the global financial and economic crisis.
The monthly deficit number released by the CBO, combined with projections for a record federal deficit for 2011, clearly shows that the United States is trapped in a spiral of structural mega-deficits, which are unsustainable and will inevitably lead to a sovereign debt collapse for America. This is made more certain with the continuing proof that the American political establishment is totally useless in responding to this acute fiscal emergency.
Sooner and not later, market forces, in particular the bond vigilantes, will intercede where the politicians in Washington have failed. The result will not be pretty, for the U.S. and entire global economy.
global economic crisis
According to the non-partisan Congressional Budget Office, the annual deficit of the United States federal government will reach $1.5 trillion in 2011, a record amount in nominal terms. More alarmingly, the CBO projection exceeds 10 percent of the U.S. GDP for the first time since the onset of the global financial and economic crisis in 2008.
Two things need to be pointed out. The CBO forecast is not a “worst case” scenario but a conservative projection, which may possibly be exceeded. Secondly, this staggering structural mega-deficit follows on the heels of several previous annual U.S. trillion dollar annual deficits, in parallel with similar ratios of government deficit to GDP in many other advanced economies.
The continuing flood of red ink is rapidly hastening a “come to Jesus” moment for many indebted economies, and a catastrophic sovereign debt crisis looks increasingly likely for the United States.
global economic crisis
Amid the worsening Global Economic Crisis, the Congressional Budget Office fired a lead cannon ball over the bow of the Obama administration’s ship-of-state. Contradicting the claim by President Barack Obama and his economic team that the monstrously huge federal budget deficits would be reduced in half by the end of his first term of office, the CBO is projecting that from 2010 through 2019 the accumulated Federal deficits will reach$9.3 trillion dollars, a sum that exceeds the Obama administration’s own ten year forecast by $2.3 trillion dollars. Peter Orszag, who serves as President Obama’s budget director, is sticking behind the more optimistic projections of the White House. So who is correct?
In my opinion, they are both wrong, though the CBO is closer to reality. In fact, the current fiscal trajectory of the U.S. government promises only an ocean of red ink, with deficits soaring through the stratosphere. To begin with, the Obama administration is projecting an end to the recession by the end of the year, with growth returning in 2010 and becoming increasingly more robust. This is sheer fantasy; the U.S. is only in the earliest stages of the worst economic crisis since the Great Depression of the 1930s, with government tax revenues set to contract at unprecedented rates just as Federal government expenditures are ballooning through the proverbial roof. As for the CBO, a year ago they forecasted that the U.S. budget deficit for 2009 would be “only” just over $200 billion dollars, versus the current Obama administration’s “optimistic” forecast of $1.7 trillion. In addition, prior to George W. Bush assuming office as America’s 43rd president, the CBO was assuring policymakers that they could count on budget surpluses far into the future.
In earlier posts I projected the U.S. budget deficit for 2009 at above $2 trillion, with a good chance of exceeding $2.5 trillion. If anything, the fiscal posture of the United States continues to deteriorate, as her economy sinks into free fall collapse, dragging much of the world down into this economic death spiral. In effect, the U.S. budget has become a candle burning at both ends, as a convergence of dwindling tax revenue and exploding expenditures on banking and corporate bailouts and so-called “stimulus packages” becomes a deadly embrace. On top of this apocalyptic news, the U.S. has more than $60 trillion in unfunded social security and Medicare obligations.
The U.S. budget deficits, and the cascading national debt that is resulting from this acute fiscal imbalance, may create an irreversible slide into national insolvency. It could be that the “good faith and credit” of the U.S. government will not survive the Global Economic Crisis.
global economic crisis
The U.S. congressional budget office has recently forecast that the current federal budget deficit will exceed $ 1.2 trillion dollars, more than double the previous year’s near-record government overdraft. However, the CBO estimate does not even include the Obama stimulus package in its estimates, likely to be in the range of a trillion dollars over two years. Perhaps most problematic, the estimates conveniently set aside the catastrophic diminution in tax receipts that are inevitable, as the impact of the Global Economic Crisis on the American economy contracts payrolls and bankrupts businesses large and small. Just as dead men tell no tales, dead companies and unemployed workers pay no taxes.
WWW.GlobalEconomicCrisis.com projects that for 2009, the U.S. government will have a deficit in excess of two trillion dollars and possibly even in excess of $2.5 trillion. However, government taxing and spending does not only occur at the federal level. All over America during the course of 2009, state, municipal and county governments will be drowning in red ink, and beg the federal government to bail them out. That is the logic of borrowing from Peter to pay Paul. There is a limit to how much money even the United States Treasury can borrow. However, an even greater danger lurks in both the short and long term.
The massive deficit spending that Washington initiated as the global financial and economic crisis accelerated was supposed to free up the credit markets and allow normal flows of business lending to proceed. In a fiscal paradox, the very solution implemented by the U.S. Treasury and Congress, massive debt spending by government, will inevitably suck up credit from the private sector like a vacuum cleaner, diverting this economic necessity into the public deficit purse, further aggravating the credit crunch.
The out-of-control multi-trillion dollar deficits being offered by Washington politicians and their coteries of corporate socialists desperate for a government bailout will bankrupt both the public and private sector, and ensure that the Global Economic Crisis brings about a worldwide depression of catastrophic proportions.
global economic crisis