The Federal Funhouse

Washington DC has now become the linchpin of lies regarding the US economy. When one looks at the numbers, it is easy to see why this must be so. The Federal budget deficit is now running at somewhere between 14% and 15% of GDP. Because the administration has postponed the budget update past the mandatory deadline, we do not have any official figures so we must estimate based on other data but Americans should be quite used to that by now.

The latest Monthly Treasury Statement through June 30 gives us a lot of very useful data. Tax receipts are falling rapidly; for the fiscal year to date, taxes are down from $1,934 billion to $1,589 billion - a drop of 17.8%. The trend has been for the monthly numbers to get worse as the FY has gone on but if that applies to the full year then revenues will be $2,073 billion. The current budget estimate is just under $4,000 billion but will likely be higher as unemployment and related expense rise with a tanking economy. This leaves the US government with a $2 trillion deficit in a $14 trillion economy. In other words deficit spending is on pace to equal 14.3% of the economy.

Looked at another way, approximately one-seventh of the economy should not exist, currently exists only due to Washington spending money it doesn't have and will cease to exist as soon as that spending stops. The spending can continue only so long as creditors are foolish enough to supply more capital for the Federal government to destroy. Once the funhouse mirror of massive deficit spending is removed, we will likely see at least a 10% further decline in the economy within 6 months - taking huge chunks of other nations' economies with it.


Wall Street Wacko
We have also now seen the "confidence" return to Wall Street. What this really means it that speculators have put aside their fully justified fears and returned to blind, stupid buying. The "reasoning" behind this is that they managed to rob the taxpayers to cover their last set of enormous losses so their is no longer any such thing as risk. Heads they win, tails the taxpayer loses. As we have pointed out before, the Fed has aligned themselves with the speculators and is feeding such delusions. But these folks obviously haven't been paying any attention to the political climate at all. Congressmen that voted to bail out Wall Street at our expense are facing hostile crowds in their home districts. Many of them are now cancelling public appearances. Politicians now fear for their safety as their victims are beginning to realize what has happened. Even if the bond market allows this foolishness to continue, there is unlikely to be any support for another bailout when the next bubble bursts - which is likely to be either commercial real estate or commodities (again).