ChartingTheEconomy.Com

The above chart shows the projected sources of funding (receipts) for the U.S. Government for 2009.  Borrowing (the federal budget deficit) is projected to account for nearly half of all funding.  If you read yesterday’s post, you also know that the amount of borrowing in 2009 is likely to increase (because the Obama administration’s budget assumptions are too optimistic).

Data source:

Updated Summary Tables, May 2009, Budget of the U.S. Government Fiscal Year 2010.  Table S-4.

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Last week the Obama administration released its new budget projections, and the overall deficit was revised upward.  The above chart shows the budget deficit as a percentage of GDP based on the Obama administration’s February 2009 budget projections and on their new projections.

In March, I said that the Obama administration’s budget was optimistic (here’s a link to several articles I wrote back then on the budget:  http://chartingtheeconomy.com/?cat=7).  So, I hope no readers were surprised last week when the administration came out with a revised budget projecting the 2009 deficit would increase by $89 billion and the 2010 deficit would increase by $87 billion.  I think there will be another negative revision later this year because the assumptions in the administration’s budget are still too optimistic.

First, I think the budget is too optimistic in its growth projections.  It has real GDP declining only by 1.2% in 2009 and growing by 3.2% in 2010 (4% in 2011, and 4.6% in 2012).  The next chart shows three differing views of budget year 2009 year-over-year real GDP growth.  As you can see the Obama administration’s projection is far more optimistic than the Blue Chip concensus and the Congressional Budget Office (CBO) projection.

Second, the administration’s unemployment figures are too optimistic.  It has the 2009 average unemployment rate at 8.1% and the average for 2010 at 7.9%.  The unemployment assumption is an important input in the budget process.  A higher unemployment rate has several adverse impacts on the deficit including:  1) higher government expenditures on unemployment benefits, 2) lower income and payroll tax receipts, and 3) reduced consumer spending which leads to lower GDP growth.  The chart below shows how the unemployment rate would need to trend in coming months in order for the Obama administration’s assumption to be accurate.  Note:  The U.S. budget year starts October 1st of the prior year (so we are more than halfway through the 2009 budget year).

The projections in the above chart hit the administration’s assumption of a 8.1% unemployment rate in 2009 and 7.9% in 2010.  As you can see in this example the unemployment rate would need to start improving now and continue to improve steadily over the next 17 months.  Of course the administration’s assumption can also be hit if the unemployment rate continues to increase in the next few months.  If this happens, the recovery would need to be much more extreme.  I believe the administration’s unemployment assumption in their budget projections will be very difficult to hit.

Given the Obama Administration’s optimistic assumptions I think we are in for another negative revision in the federal deficit later this year.  This administration definitely does not have a budget strategy to set low public expectations, and then exceed them.  Just the opposite.  It appears that their budget strategy is to set optimistic public expectations, and then to gradually revise the expectations downward.  Get use to it.  The administration’s budget numbers are still a best case scenario.

Data Source:

Budget of the U.S. Government Fiscal Year 2010, Updated Tables May 2009.  Table S-9, S-13, and S.14.   Table S-13 has the April 2009 Blue Chip Economic Indicators (Aspen Publishers, Inc.), and the CBO’s March projections.

The Blue Chip Economic Indicators is published monthly by Aspen Publishers, Inc.  It is a poll of America’s top business economists.

U.S. Bureau of Labor Statistics

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The above chart shows the per capita portion of the national debt, and forecasts where it is headed under the Obama Administration’s budget plan.  The purpose of the chart is to personalize the national debt.  When we hear numbers like $10 trillion it is difficult to understand the magnitude of the problem.  I hope this chart brings some perspective to the issue.

Note:  I believe the actual per capita portion of the national debt will likely be higher than what this chart forecasts.  Why?  As I have said before the Obama Administration’s budget proposal, which this chart is based on, appears optimistic.  It forecasts only a slight recession for 2009 and  strong growth for the following decade.

Data Sources:
> Forecast data is from the Office of Management and Budget,  A New Era of Responsibility Renewing America’s Promise, Table S-9.
> U.S. Treasury, Treasury Direct
> U.S. Bureau of Economic Analysis, Table 2.1  Personal Income and Its Disposition
> U.S. Census Bureau population forecast

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The Congressional Budget Office (CBO) last week came out with its budget projections based on the Obama Administration’s budget proposal.  In prior posts I have been saying that the Obama Administration’s proposal is optimistic, and the CBO projections back me up.  The above charts show the difference between the CBO’s and the Administration’s budget deficit projections under Obama’s plan.  As you can see the difference in the projections are substantial.

Data Source:

>  Office of Management and Budget, A New Era of Responsibility Renewing America’s Promise.  Tables S-1. and S-4.

> Congressional Budget Office, A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook, March 2009.  Table 1.4.

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The above chart shows the national debt as a % of GDP going back to 1929.  It also forecasts the level of national debt as a % of GDP for the next few years based on the Obama Administration’s budget plan. Some observations from this chart:

1) In the next year the national debt will near 100% of GDP.
2) This is the highest level since immediately after World War II.
3) After WWII until 1980 our political leaders steadily brought down the national debt to GDP ratio.
4) After 1980 fiscal discipline went out the window (except for a brief period in the 1990’s).

Since 1980 we have had one of the greatest economic expansions in our nation’s history.  This chart shows that it has been largely funded through increasingly unsustainable debt levels.

Data Sources:
>Forecast data is from the Office of Management and Budget,  A New Era of Responsibility Renewing America’s Promise, Tables S-1 and S-9.
>U.S. Treasury Department, Treasury Direct
> U.S. Bureau of Economic Analysis, Table 1.1.5. Gross Domestic Product

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The above chart shows the U.S. national debt as a percentage of the U.S. Gross Domestic Product (GDP).  This is a very traditional measure of the national debt and shows the national debt relative to the size of the U.S. economy.  Based on the data from the Obama Administration’s proposed budget the national debt will grow to almost 100% of GDP in the next couple of years.  Essentially, the national debt will be the same size as the overall U.S. economy.  I believe this forecast is a best case scenario given that the Obama Administration’s proposed budget appears optimistic.  Why?  Because it forecasts only a small decline in GDP in 2009 of 1.2% followed by average annual growth of almost 5% over the next decade.  Either way, a national debt of 100% of GDP is historically an extremely high level of debt relative to GDP (tomorrow’s chart will show the historical levels). 

Data Sources:
>Forecast data from the Office of Management and Budget,  A New Era of Responsibility Renewing America’s Promise, Tables S-1 and S-9.
>Bureau of Economic Analysis, Table 1.1.5. Gross Domestic Product.
>U.S. Treasury, Treasury Direct

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The above chart shows the foreign ownership of U.S. treasury securities (i.e.  foreign ownership of the U.S. national debt).  The total foreign ownership of U.S. treasuries was $3.077 trillion as of December 2008.  Also, it should be noted that in 2008 China surpassed Japan as the largest foreign holder of U.S. treasury securities.

The large (and growing) foreign ownership of the U.S. national debt can be seen as both a positive and negative.  First, foreign demand of our debt has helped provide for low borrowing costs (i.e. low interest rates).  It also makes us more interdependent with these countries which can provide for a more stable world.  However, on the downside, our economic security increasingly is being placed in foreign hands.  For a full analysis on this topic you can read my article from March 2005 entitled The U.S. Current Account Deficit:  Is Our Economic Health in Foreign Hands?

Data Source:
>U.S. Treasury Department, TIC Report

Note:
1  Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, Panama, and BVI.
2  Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UAE, Algeria, Gabon, Libya, and Nigeria.

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The above chart shows the U.S. national debt as a percentage of annual federal government receipts.  I like this measure of the national debt because it shows the national debt as it relates to the federal government’s revenues (mainly tax receipts).  Based on the Obama Administration’s proposed budget, released last week, the national debt will jump to nearly 600% (six times) the federal government’s annual revenues.  Bacially, if the federal government was a corporation, its debt load would be 6x its revenue.  That qualifies as extreme leverage.  Obviously, the government is not a corporation, but this measure provides an interesting perspective on the government’s ability to pay back the national debt.

Data Sources:
>U.S. Treasury, Treasury Direct
>Bureau of Enonomic Analysis, Table 3.2 Federal Government Current Receipts and Expenditures
>Forecasts are from the Office of Mangement and Budget,  A New Era of Responsibility Renewing America’s Promise, Tables S-1 and S-9.

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This is the first chart in a six part series on the national debt.  The above chart shows that it took the U.S. from its founding until 1996 to accumulate its first $5 trillion in national debt.  Then it took only 12 more years to accumulate its next $5 trillion in national debt.  The Obama administration released its proposed budget last week, and the debt picture is not pretty.  It forecasts that in 2011 the U.S. will surpass $15 trillion in national debt.  So, as the above chart shows from 2008 to 2011 we will have accumlated another $5 trillion in national debt.

Source:
U.S. Treasury - Treasury Direct.
Forecast are from the Office of Management and Budget,  A New Era of Responsbility Renewing America’s Promise, Table S-9.

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A Different Way to Look at the Federal Debt

January 28, 2005

By: ChartingTheEconomy.Com

Everywhere you look there is talk of the Federal budget deficit and Federal debt and the opinions vary from it doesn’t matter, to it’s our biggest problem.  The purpose of this article is not to debate the significance of this issue.  The purpose is to give readers a different perspective.

The traditional measure used to show the relative size of the Federal budget deficit and Federal debt is as a
percentage of gross domestic product (GDP).  This measure is meant to reflect the nation’s ability to pay down the
deficit/debt. What this measure really does is reflect our Federal Government’s deficit/debt as a percentage of the
total size of our economy.  If we want to understand our ability to balance our annual budget and to pay down the
debt, a better way to view the issue is as a percentage of Federal tax receipts (the Federal Government’s revenue).

The only way to reduce our debt is by increasing revenues (tax receipts), reducing spending, or both.  In
short, we don’t balance budgets and pay down debt with our gross domestic product we do it with tax receipts.
Please note that increasing tax receipts does not necessarily mean increasing tax rates.  In some cases the way to
increase overall tax receipts could be by reducing tax rates which may produce new incomes sources.  However, we will save the issue of how best to increase tax receipts for another discussion.

Chart # 1 shows the Federal debt as a percentage of annual tax receipts.  The numbers are based on the Federal
Government’s fiscal year which ends September 30 and include both debt held by the public and intragovernmental holdings (Intragovernmental holdings primarily represent money the government has borrowed from Social Security).  The 2005 estimates are based on Congressional Budget Office (CBO) on-budget projections plus the additional $80 billion that the Bush Administration is seeking for military operations in Iraq and Afghanistan.  The CBO’s 2005 projection for Federal tax receipts is also used.

Simply put, this chart shows that the Federal debt in recent years has grown to a level that is almost four times
annual tax receipts.  The Federal budget deficit is running at just over 30% of annual tax receipts.  When the Federal
debt is shown as a percentage of GDP it was 64% in 2004.  When the budget deficit is shown as a percentage of
GDP it was 4.9% in 2004.  Some analysts also show these numbers without including intragovernmental holdings
which makes them look even smaller (about 37.5% for the Federal debt and 3.6% for the budget deficit in 2004).
The problem with these numbers is they make the issue of paying off our debt and balancing our budget seems
much smaller than it is.  Our true ability to pay off our Federal Government’s debt and balance its annual budget is
based on tax receipts and spending.  To this end, it is more important to understand our Federal Government’s
financial imbalance relative to its revenue than to the size of the economy.

Source:

U.S. Treasury

U.S. Bureau of Economic Analysis