US Budget Gap Exceeds $1 Trillion for Fiscal Year

“U.S. Treasury Secretary Timothy Geithner said in a letter to Senator Judd Gregg last month that $70.1 billion in repayments from 32 banks that received government funds indicate financial firms are healing.”

“The banks have paid back funds from the $700 billion TARP program, enacted last year. Participating financial firms also have paid $5.2 billion in dividends to the U.S. government, Geithner said in the letter, dated June 30 and released July 7.”

Surprise! Must-read:

Banks buying back TARP warrants at a discount, panel says (Market Watch):
WASHINGTON (MarketWatch) — A panel that oversees the $700 billion bank bailout package said Friday that financial institutions buying out warrants they gave the government in exchange for capital injections are now buying back those stakes at well below their fair value. The Congressional Oversight Panel, which is charged with overseeing the Troubled Asset Relief Program, or TARP, said in a report that a group of 11 small banks that have repurchased government warrants in exchange for taxpayer-funded assistance, have bought-out the stakes at 66% of their face value.

… and the taxpayer pays for it all. Change!


July 13 (Bloomberg) — The U.S. budget deficit topped $1 trillion for the first nine months of the fiscal year and broke a monthly record for June as the recession subtracted from revenue and the government spent to rejuvenate the economy.

The shortfall for the fiscal year that began Oct. 1 totaled $1.1 trillion, the first time that the gap for the period surpassed $1 trillion, Treasury figures showed today in Washington. The excess of spending over revenue for June was $94.3 billion, the first deficit for that month since 1991, according to data compiled by Bloomberg.

Individual and corporate tax receipts are sliding even as the worst recession in five decades shows signs of easing (?) because the jobless rate continues to rise — reaching a 26-year high in June — and companies have yet to see a sustained increase in demand. The shortfall is also widening as the government ramps up spending from the $787 billion stimulus program President Barack Obama signed into law in February.

“This is a difficult pill to have to swallow,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “The economy and banking system need these funds to recover, yet it will ultimately hit Americans’ wallets hard. It’s a necessary evil.”

Treasuries Drop

Treasuries fell to their lows of the day after the figures, with yields on benchmark 10-year notes rising to 3.35 percent at 3:29 p.m. in New York from 3.30 percent late yesterday.

Economists surveyed by Bloomberg News forecast a June deficit of $97 billion, according to the median of 30 estimates. Projections ranged from deficits of $109.3 billion to $70 billion.

The June deficit compares with a surplus of $33.5 billion in the same month a year earlier. Spending last month surged 37 percent to $309.7 billion and revenue fell 17 percent to $215.4 billion, the Treasury said.

The Congressional Budget Office estimates the federal budget shortfall for the first nine months of the fiscal year was also $1.1 trillion, while saying the budget deficit for June was $97 billion. For the fiscal year that ends Sept. 30, the Office of Management and Budget forecasts the deficit to reach a record $1.841 trillion, more than four times the previous fiscal year’s $459 billion shortfall.

For the fiscal year to date, the interest expense on the government’s outstanding debt was $320.7 billion, according to Treasury data released July 7. Total public debt outstanding exceeds $11.5 trillion, according to the Treasury’s July 9 statement on the government’s cash balance.

Tax Receipts

Corporate tax receipts totaled $101.9 billion through June versus $236.5 billion, a decline of 57 percent, the Treasury’s budget statement said today. Individual income tax collections were down 22 percent so far this fiscal year to $685.5 billion compared with $877.8 billion in the year-earlier period.

In other categories, spending by the Social Security Administration rose to $544.7 billion from $491.7 billion for the fiscal year to date; spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, rose to $588.7 billion from $520.4 billion and spending by the Defense Department rose to $472.8 billion from $439.5 billion, Treasury said today.

The Treasury also said that for the fiscal year to date it has spent $147.2 billion on the financial rescue plan called the Troubled Asset Relief Program, and $84.9 billion to purchase mortgage debt from government-sponsored enterprises including Fannie Mae and Freddie Mac, now in government conservatorship.

Geithner Letter

U.S. Treasury Secretary Timothy Geithner said in a letter to Senator Judd Gregg last month that $70.1 billion in repayments from 32 banks that received government funds indicate financial firms are healing.

The banks have paid back funds from the $700 billion TARP program, enacted last year. Participating financial firms also have paid $5.2 billion in dividends to the U.S. government, Geithner said in the letter, dated June 30 and released July 7.

The economy has lost 6.5 million jobs since the recession started in December 2007, and gross domestic product contracted at a 5.5 percent annual rate in the first quarter, the third consecutive quarterly decline.

Growth will average 1.5 percent in the July-to-December period, compared with last month’s 1.2 percent projection, according to the median of 57 forecasts in a Bloomberg survey taken from July 2 to July 8. The jobless rate will exceed 10 percent early next year and average 9.8 percent for 2010, the survey said.

Obama Stimulus

The stimulus plan Obama signed in February is designed to preserve or create millions of jobs (?). The administration also has committed funds to help the automotive and banking industries, taking a major stake in bankrupt automaker General Motors Corp. and interests in a variety of financial firms including Bank of America Corp. and Citigroup Inc.

The government has paid about $29 billion from the stimulus to state and local governments, the Government Accountability Office said in a report obtained by Bloomberg News. Most of that is allocated for health care and education and it makes up about 60 percent of the stimulus funding states and local governments will get for fiscal 2009, congressional auditors said.

The Treasury is increasing auctions of securities to finance the government’s spending. After more than doubling Treasury note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to Barclays Plc. The second-half sales would be more than the total amount of debt sold in all of last year.

Message for China

Geithner has sought to reassure China (failed!), the largest foreign holder of Treasuries, that its investments are safe, while also seeking to reassure U.S. voters that the government has a plan to get its debt under control.

“If we don’t convince the American public and investors around the world we have the will to do that, then we will face the risk that interest rates rise, they choke off incipient recovery, and we’re left with higher unemployment, lower private investment, for a longer period of time,” he said in a June 18 interview on “The News Hour with Jim Lehrer”.

To contact the reporter on this story: Vincent Del Giudice in Washington at vdelgiudicebloomberg.net

Last Updated: July 13, 2009 15:32 EDT
By Vincent Del Giudice

Source: Bloomberg

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