Crutsinger's Crud, Part 3: AP Again Erroneously Cites Cost of Wars As Deficit Increase Factor

APabsolutelyPathetic0109

Somebody really needs to find the Associated Press's Martin Crutsinger some OCD therapy. It seems that he has a not-magnificent obsession with the two major theaters of the War on Terror (yeah, I still call it that), and that he seemingly won't be able to conquer it without outside intervention.

In his report on August's federal budget deficit, the AP reporter continued to cite the wars in Iraq and Afghanistan as contributors to the increase in the federal budget deficit, when they are in fact virtually if not totally irrelevant. Additionally, he betrayed a critical misunderstanding of how the government has decided to account for "investments" the Treasury Department has made in many financial entities, General Motors, and Chrysler.

This is the third consecutive month for Crutsinger's war-connected crud:

  • In July (covered at NewsBusters; at BizzyBlog), addressing June's Monthly Treasury Statement (MTS), he wrote that "The deficit has been widened, and .... The cost of wars in Iraq and Afghanistan also is a major factor." Even if the entire $33 billion year-over-year increase in military spending at the time were due to those two wars (and it's not, as NB commenter Arminius roughly demonstrated), that would have explained less than 5% of the $723 billion year-over-year deficit increase.
  • In reporting on July's MTS in August (covered at NewsBusters; at BizzyBlog), Crutsinger falsely went to the military spending well again, citing "the cost of wars in Iraq and Afghanistan" as a major factor in the deficit increase. This time, the year-over-year defense spending increase of $40 billion compared to a deficit increase of $878 billion over the same period.

The third time's not the charm, Martin. Here are key paragraphs from Crutsinger's early Saturday report on the August MTS (bold after title is mine):

Federal deficit hits $1.38 trillion through August

The federal deficit surged higher into record territory in August, hitting $1.38 trillion with one month left in the budget year.

.... Private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings.

The Treasury Department said Friday that last month's deficit was $111.4 billion, below the $152 billion that economists expected. Still, the imbalance added to a flood of red ink already accumulated through the recession and massive spending needed to stabilize the banking system.

The Obama administration last month trimmed its forecast for this year's deficit to $1.58 trillion, from an earlier $1.84 trillion. The recovery of the banking system led to the reduced estimate as it meant the administration did not need to get an additional $250 billion in bailout support for banks.

The $1.58 trillion estimate for the full budget year signals that that administration expects the imbalance in September to be around $200 billion. That would be a sharp deterioration from September 2008 when the government closed out that budget year with a $45.7 billion surplus.

Many private economists have slightly smaller deficit estimates for the full year but all agree that 2009 will be a record-holder by a large margin. The previous record deficit in dollar terms was $454.8 billion last year.

The administration's revised budget forecasts issued last month also underscored how much the government's fiscal picture has deteriorated. It is now projecting the deficit over the next decade will total $9 trillion, $2 trillion more than its estimates from a few months ago.

The deterioration partly reflects the country's deep recession, the worst since the 1930s. That downturn has cut into government receipts and pushed up spending in such areas as unemployment benefits and food stamps, along with the cost of fighting wars in Iraq and Afghanistan.

In addition, the government is using a $787 billion economic stimulus program passed by Congress last February to jump-start growth and is spending massive amounts from the $700 billion financial bailout package passed in October 2008 to stabilize the financial system.

So, here we go again.

This time, referring to Table 3 of the August Monthly Treasury Statement, total defense spending through eleven months of the fiscal year was $576 billion, up 6.3% from $542 billion at the same time last year. That $40 billion difference, which is narrower than last month's cumulative $40 billion difference, hardly is "major" in the context of a total deficit increase of $867 billion so far this year ($1.378 trillion through August 31, compared to $511 billion last year).

Our year-over-year military spending in the two War on Terror theaters (oops, there I go again) has not increased that much, if at all; recall that the Surge took place largely in fiscal 2008. If Arminius's 15% estimate for the cost of the two wars as a percentage of the total defense budget is accurate, you can't possibly come up with a difference between the two fiscal years that would be a material percentage of the monstrous deficit increase.

Bigger contributors to the enlarged deficit on the spending side include the following:

  • HHS, up $76 billion, or 11.6%.
  • Department of Labor, up $70 billion, or 132% (you read that right).
  • Social Security Administration, up $60 billion, or roughly 10%.
  • "Other" (all within Treasury Department itself, not described in detail anywhere else), up $247 billion, or 229% (you read that right).

The deterioration in collections, which Crutsinger did mention, is a far, far bigger problem, as seen here:

USreceipts0809v0808

As the government defines them, receipts are down by about $365 billion. Receipts from economic activity, ignoring last year's stimulus payments, which the government treated (in my opinion erroneously) as negative receipts, are down by about $450 billion, or over half of the $867 billion worsening of the year-over-year deficit.

Crutsinger's claim that the "The recovery of the banking system led to the reduced (deficit) estimate (of $1.58 trillion) as it meant the administration did not need to get an additional $250 billion in bailout support for banks" is flat-out false. As I noted in late May ("The Federal Deficit Gets Nearly Indecipherable"), Treasury doesn't characterize TARP and other "investments" as "outlays" any more, making whether or not funds were accessed irrelevant to the immediate deficit calculation.

Of much more relevance, and apparently not reflected in August's MTS, are estimated TARP and other investment losses. Treasury's investments in GM and Chrysler alone amount to $81 billion. To say that a lot of that isn't coming back is drop-dead obvious, and in fact the government has conceded that point. The only question is what a good estimate of the loss should be when the fiscal year ends.

It will be interesting to see if Treasury attempts to mark its "investments" down to true "Net Present Value," as it is supposed to under its convoluted accounting scheme, or if it will in the name of reporting a lower deficit try to pretend that their value is largely unimpaired. Write-downs are treated as "outlays" in the convoluted Net Present Value accounting Treasury uses, and would increase the deficit if recognized.

Based on his performance during this and prior months, it's fair to ask whether Martin Crutsinger or other establishment media reporters will even know that they should follow up on this.

Cross-posted at BizzyBlog.com.

Tom Blumer
Tom Blumer
Tom Blumer is a contributing editor for NewsBusters.