What’s the Real Federal Deficit?

The federal deficit for the past ten weeks alone is now 650 Billion dollars, in addition to a fiscal 2008 deficit of $1 Trillion.

Since the US government fiscal year ended on 9/30/08, the federal debt has increased from $10,024 Billion to $10,656 Billion (as of 12/9/08).* The federal debt increased by $1 Trillion over the 12 months ending 9/30/08.

As I’ve previously noted, measuring the Federal deficit by looking at growth in the Federal debt provides a clearer picture of budget shortfalls than the officially announced numbers, which hide significant expenditures, and paint too rosy a picture.

A large part of the recent increase in the debt can be tied to the Treasury Department’s various stabilization and bailout initiatives, including the TARP and other programs. President-elect Obama plans to add a significant dose of fiscal stimulus to the Treasury and Federal Reserve efforts, driving the deficit up by another 500 Billion to one trillion in the next year. While current circumstances do call for aggressive action, the government should take care not to exacerbate our economic problems by trying to roll the clock back to 2006. Lowering mortgage rates for new home purchases, for instance, provides an incentive to create and buy more of a product that is already in a state of massive over-supply.

When the bad times end, we’ll have to start paying these debts back. Let’s hope President-elect Obama and his team spend their stimulus money on projects with tangible return on investment, and not just on make-work programs.

 

* A significant portion of the increase in deficit spending is being used to buy financial institution shares and various commercial debt instruments, which might be thought of as investments. Nonetheless, the federal debt grows when we borrow, even if we use the money to buy investments. This holds true for personal balance sheets, corporate balance sheets, and for the federal government as well. The federal government has a particularly poor record of decreasing the size of its debt, so I believe it’s fair to regard any excess borrowing as a deficit.