18 July, 2011

U.S. Debt-The Economy

This is part 2 in my series on the U.S. Debt. Part 1, “U.S. Debt-How We Got Here”, can be found here.

In part 1, I explored the budgets for the last 5 years, and our exploding debt during the same time. It would be reasonable to criticize that post for not taking into account the effects of the economic downturn of 2008. This post will attempt to do that. If you like, you can think of this as “How We Got Here, Part 2”.

First I’m going to examine revenue projections for 2009, 2010, and 2011. I start with the 2009 budget as it was the last one submitted before the financial crisis of September, 2008. Then I’ll look at the government cost for dealing with the financial crisis and economic meltdown. After that, we should have a good idea on how much that has impacted our debt. As before, all amounts are in billions of dollars.

2009 Budget: (2011 & 2012 based upon current projections—2011 should be pretty close, fiscal year almost over)

Year Projected Revenue Actual Revenue
2009 2700 2105
2010 2931 2165
2011 3076 2174
2012 3270 2628

2010 Budget:

Year Projected Revenue Actual Revenue
2010 2381 2165
2011 2713 2174
2012 3081 2628


2011 Budget:

Year Projected Revenue Latest Projection
2011 2567 2174
2012 2927 2628


2012 Budget:

Year Projected Revenue Latest Projection
2012 2627 2628


You can see the continued downward forecasts in the later budget projections. Notice that revenues have been basically flat since 2009, and yet we’re still projecting over 20% revenue growth for 2012.

In addition, looking at projected debt again, the 2009 budget projected a debt load of $11,432B at end of FY11. Our current debt projection for this FY is $15,476B, a difference of $4,044B.

We are also still projecting 2012 revenue to be over $600B less than the projection given in the 2009 budget. This shows that the economic slowdown is still hurting us quite a bit, and likely will for several years to come. In addition, for the three years from 2009-2011, we are down $2263B in projected revenue, leaving $1781B to blame on “new spending”.

That’s a lot of new spending over three years. It would be nearly $6T over ten years assuming the pace doesn’t accelerate. But that does include cost of stimulus, TARP, etc.

So, how much did all of these cost?

Well, if you believe President Barack Obama’s (D-USA) numbers, TARP has cost us basically nothing. Seriously, it’s in the tens of billions of dollars. A drop in the bucket on a budget of $3729B. According to the linked documents above, we spent $151B on TARP in 2009, and got back $110B in 2010, with a projection to get back $28B in 2011, and additional expenditures totaling less than $40B over the next 10 years.

The math gets a bit fuzzier for unemployment & welfare dollars. From 2007-2009, projected growth for that was pretty large, about 10.65% annually. Projecting that forward, gives $398B for 2010 and $441B for 2011. Actual for 2010 was $571B, and my estimate for 2011 was $641B, a difference of $373B.

The math gets even fuzzier when we talk about economic stimulus dollars. No one can really say how much has been spent. I chose to use the data on Recovery.Gov. It breaks the spending down by quarter.

Quarter Ending Funds Disbursed
9/31/2009 36
12/31/2009 18
3/31/2010 8
6/30/2010 24
9/31/2010 26
12/31/2010 22
3/31/2011 19


There’s no data available for the most recent quarter yet, but based on the previous quarters, I think it’s safe to assume that it’s less than $30B. I’ll be generous and say $30B. That means the total spent on stimulus to date is $183B. Add in my generous figure for welfare, and a generous $50B for TARP, and the total is $606B (likely significantly smaller).

That still leaves $1175B unaccounted for that we can safely call “new spending”. The calculated revenue shortfall from above was $2263. Add the $606B, and $2869B (71%) of our recent deficit woes are related to the economy.

That’s quite a bit, and it shows that the economy is definitely the driving force behind our current debt ceiling crisis. But the fact that $1175B (29%) of this is new spending over the last three years, and is not directly attributable to economy is disturbing as well. If you split that up evenly over the three years, you get $392B, or 10.5% of this year’s budget. It’s unlikely that the amount is actually evenly split over three years. It’s more likely that it’s weighted towards 2011, and I’m pretty sure I could prove that, but I think I’ve put enough math in this post already.

Let that sink in a moment. At least 10.5% of this year’s budget is new spending that was not projected in the original 2009 budget and is not related to our economic woes.

As I keep saying, this is the problem that has the credit agencies so concerned. Yes, they’re worried that we’re going to hit our debt limit without some sort of resolution, but they’re more concerned that we are going to do nothing to address our exploding debt, and in fact seem content to make the problem worse.

And that’s the subject of part 3 of this series, “Where Do We Go From Here”.

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