AP Report on WH Budget Delay Avoids Details, Buries Predix That 3Q Will Be Negative
Noel characterized Raum's report as suggesting that "the White House's delay in releasing an update about the budget might be tied to the administration's desire to get controversial bills on healthcare reform and cap and trade passed before Congress and Americans know just how large the deficit really is." That's because the delayed report would more than likely tell the nation that this year's deficit is expected to be even bigger than expected (using proper cash-flow reporting, which I'll get to), and future years' projected deficits are even more likely to be unsustainably high.
Two important things were missing from Raum's report. First, there was a total dearth of detail about how badly the current fiscal year that began on October 1 of last year has gone -- most especially the last quarter. Second, Raum saved until near the end of his report a prediction by one of the wire service's go-to "experts" -- the first such prediction I've seen -- that Gross Domestic Product will contract yet again in the third quarter.
Concerning the first problem, the AP reporter only had six dollar amounts in his entire report, quoted as follows:
(Fourth paragraph) The administration is pressing for votes before then on its $1 trillion health care initiative, which lawmakers are arguing over how to finance.
That's old news, and as many, including the Congressional Budget Office (CBO) have noted, an incredibly squishy estimate.
(Seventh paragraph) Congress did pass a $787 billion two-year stimulus measure, yet unemployment soared to 9.5% in June and appears headed for double digits.
Again, old news.
(16th paragraph) The nation's debt — the total of accumulated annual budget deficits — now stands at $11.6 trillion.
Zzzzz. Do you get the sense that someone is stalling?
(17th paragraph) The administration has projected that the annual deficit for the current budget year will hit $1.84 trillion, four times the size of last year's deficit of $455 billion. Private forecasters suggest that shortfall may top $2 trillion.
That's it. Every number Raum "revealed" is old. It's as if there's no data available on what has happened since the last White House estimate or the Congressional Budget Office's last version that estimate far higher out-year shortfalls.
There's plenty of information that would have helped Raum give readers more insight if he had cared to do a little looking.
Let's start with receipts. The CBO and the White House, in the only number that both parties agree on (as seen at this PDF White House vs. CBO comparison), estimate that the fiscal year total will be $2.186 trillion.
Not a chance. Year-to-date receipts are only $1.589 trillion. Uncle Sam will have to take in $597 billion during the fourth fiscal quarter, which would be about 1.5% ahead of last year's total (or about 1.5% behind it if you ignore last year's $15 billion or so of stimulus payments).
That's going to be a pretty mean trick, given how the second quarter of 2009 compared to the same quarter in 2008:
Even if you deducted 2008's stimulus payments of about $78 billion from the second quarter 2008's receipts total, 2009 still trailed 2008 by about 24%.
It's not unreasonable to believe that the government's take will be $50 - $100 billion lower in the fourth fiscal quarter; I'm leaning towards the higher end of that estimate, especially given the the first half of July looks just as bad as previous months.
As to outlays, the administration made that area nearly indecipherable back in April when it decided to retroactively adopt so-called "Net Present Value" accounting for the government's "investments" in financial institutions, auto companies, parts suppliers, and others. Despite that adjustment, which arbitrarily reduced reported outlays by $175 billion, and continues to affect month-to-month reporting, outlays through nine months have been $2.675 trillion. The real number should be closer to $2.9 trillion. Combine the fact that the government seems destined to spend $300 billion or more a month on recurring programs with the administration's perceived need to start disbursing a large chunk of that $787 billion in stimulus money as promised on top of that, and the government appears destined to drive total spending closer to the $4.018 billion CBO predicted than the $3.853 trillion the White House is clinging to (the March CBO comparison was done before the "Net Present Value" accounting change took place).
So pre-"Net Present Value" hocus pocus, the deficit looks to be about $1.9 trillion (about $2.1 tril in receipts minus $4.0 tril in outlays). Even with hocus pocus, which might be expected to take it down to $1.7 trillion or so, Treasury should be forced to write down its combined $70 billion-plus investments in Chrysler and GM to their realizable present values, which would cause "outlays" to increase by tens of millions.
Then there's the "little" gem Raum saved the worst until not far from the very end specifically at Paragraph 23 of 27:
(Standard & Poor's chief economist David) Wyss, like many other economists, says he expects the recession to last at least until September or October. "We're looking for basically a zero second half (of 2009). And then sluggish recovery," he said.
Well, isn't that something -- especially the "many other economists" part? That isn't burying the lede; it's dropping it into a 50-foot pit and filling it with reinforced concrete.
If Wyss and others are right, a negative third quarter of GDP will put an enormous amount of pressure on the fourth quarter to come in at a highly positive level if the Fed's most recent predictions for full year growth, as reported here, are to occur.
The following charts show what would have to happen with and without Wyss's recession continuation prediction for the third quarter:
The first quarter is actual; the second quarter's annualized -1.8% is a consensus estimate as reported here. The first chart shows what second half growth would have to be to achieve the Fed's most recent and previous best- and worst-case scenarios. The second chart shows what fourth quarter growth will have to be if the third quarter's recession is the tiniest number possible.
If the second quarter consensus predictions hold when the actuals come out next week, and if Wyss and others are right about a recession continuation into the third quarter, the fourth quarter is going to have to go gangbusters to reach the Fed's full-year estimates. It looks more likely that the economy is going to run out of calendar days of growth first.
It would be one thing if the government's spending orgy was demonstrably turning the economy around, but it's not. Thus, the prediction by Wyss and others that contradicts that claim is arguably more damaging to the administration that the fact that the deficit is going to be even larger than it was thought to be a few months ago. Perhaps that's why Tom Raum and AP buried it so deeply.
Cross-posted at BizzyBlog.com.