It's pretty hard to dress up a disaster as something less than that, but the Associated Press's Martin Crutsinger gave it his best shot in his report yesterdayabout Uncle Sam's the May Monthly Treasury Statement, in effect understating the amount and significance of federal government's rapidly deteriorating financial situation.
With the help of dubious handling of last year's stimulus payments in May 2008's Treasury Statement, Crutsinger ignored serious declines in tax receipts from economic activity (over 30% in each of the past three months) that are, if anything, accelerating. I covered that problem in Part 1.
Additionally, after only briefly mentioning it last month (noted at the time at NewsBusters and at BizzyBlog), Crutsinger grievously erred in his explanation of how a convenient "accounting change" Treasury implemented in April relating to accounting for its Troubled Assets Relief Program (TARP) has affected the reported year-to-date deficit. He claims that it contributed to it, while in reality the accounting change reduced it by about $180 billion. That is the subject of this post.
Here are key background and accounting change-related paragraphs from Crutsinger's report:
The federal budget deficit soared to a record for May of $189.7 billion, pushing the tide of red ink close to $1 trillion with four months left in the budget year.
The rising deficit reflects increased government spending due to the recession, and billions of dollars spent on bailouts for banks and other troubled companies.
The Treasury Department reported Wednesday that the red ink so far this year totals $991.9 billion. The administration is projecting the deficit for the budget year that began Oct. 1, will total a record $1.84 trillion.
Because of the recession, spending has increased for benefit programs such as unemployment compensation and food stamps. Outlays also have risen because of the $787 billion economic stimulus package that President Barack Obama pushed through Congress earlier this year.
The new Treasury report showed government spending totals a record $2.37 trillion through the first eight months of the budget year, 18 percent more than the year-ago period.
The $991.9 billion deficit so far this budget year is more than triple the amount of red ink incurred during the year-ago period.
Under the administration's budget estimates, the $1.84 trillion deficit for this year will be followed by a $1.26 trillion deficit in 2010, and will never dip below $500 billion over the next decade. The administration estimates the deficits will total $7.1 trillion from 2010 to 2019.
I have bolded the second paragraph because that's where Crutsinger's grievous error about TARP takes place.
To demonstrate, I will show you Treasury's reported deficit in March 2008, followed by April's report, the first in which Treasury's accounting change, explained here in full, and to be explained again shortly, took effect.
Here is what the Monthly Treasury Statement (MTS) from Uncle Sam looked like in March:
Here is the report for April:
What happened is that Treasury, using language in a 1990 law that was probably never intended to be adapted for this purpose, decided, retroactive to the October 1, 2008 beginning of the government's fiscal year, that monies disbursed to financial institutions, car companies, and other recipients of Troubled Assets Relief Program (TARP) funds should be treated on the Monthly Statement -- a report that claims to be put together on a "modified cash basis" -- as "Investments." As a result, Treasury's April statement reduced reported "outlays" from October 2008 through March 2009 by $175 billion. Treasury spent the money, but because of the accounting change, in essence started acting as if the money wasn't really spent -- even though the report is supposed to be, and is generally understood to be, a cash flow report.
More gory detail about the mess this accounting change will create, how difficult it will be to follow, and its possible effect on policy, is at this May 31 BizzyBlog post.
Now let's look at what the AP's Crutsinger claimed, namely that "The rising deficit reflects increased government spending due to the recession, and billions of dollars spent on bailouts for banks and other troubled companies."
This is patently false. As noted above, TARP monies "invested" are no longer included in outlays. they are therefore NOT included in the reported deficit. At this point, as best I can tell from looking through the voluminous, confusing detail in May's Monthly Treasury Statement, net TARP "investments" through May were somewhere between $177 and $191 billion (if you can nail it down, you're a better decipherer than I).
Let's use $180 billion as a rough estimate of how much higher the government's true cash flow deficit for the fiscal year is. That would mean that the deficit though May as normal people would understand it is $1.1719 trillion ($991.9 bil plus $180 bil), and that the estimated full-year deficit as normal people would understand it is $2.004 trillion ($1.824 trillion plus $180 billion).
The treatment of TARP "investments" isn't making the deficit worse. That treatment is instead masking its true size.
Martin Crutsinger totally blew it. Does he even realize it?
Cross-posted at BizzyBlog.com.