The Obama administration today will announce that the US government's fiscal deficit will only be $1.58 trillion versus the $1.842 trillion that was forecasted in May. According to Bloomberg, the drop was due to the administration scrapped contingency plans to provide hundreds of billions of dollars in additional aid to the financial industry. The Obama official said that the deficit will amount to 11.2 percent of the nation’s gross domestic product, with spending totaling $3.653 trillion and revenues amounting to $2.074 trillion.
Reuters flashes this headline today, "U.S. deficit estimate to be trimmed to $1.58 trillion" and MSNBC runs this, "U.S. to trim billions off budget deficit estimate.....Obama axes bailout cash to reduce projected figure to $1.58 trillion." But they are misleading.
This reduction has prompted a sigh of relief from some and congratulations to the US that it has started to put its fiscal house in order. However, the Administration has achieved this feat by eliminating from their estimate TARPII ($250 billion) and anticipated FDIC expenditures ($78 billion) that was projected earlier this year. A like to like comparison to the earlier FY09 estimate that includes these programs translates into a worsening of the deficit by $68 billion compared to May. It misses because of the overly optimistic projection of revenues and the new estimate will show receipts off by about $83 billion.
On the other side of the pond, the UK released a disastrous net borrowing number of 8 billion GBP versus estimates 0.6 billion. Last year, the UK had a surplus of £5.2bn in the same month last year. The UK Office of National Statistics shows the total net borrowing for the fiscal year to date to £54.7bn from £20bn at the same point last year. This is particularly worrisome since the UK government normally runs a surplus at this time of year. This will be the first time since 1996 that the UK will have to borrow money in July.
Where did they miss? Revenue or receipts from personal and business taxes fell to 44 billion GBP from 88 billion in July last year. Here's the UK Treasury's spin, "Today’s public finance data reflects what we knew at the time, and other figures have since confirmed, in the first half of the year, the whole world was in a steep recession and that affected the public finances here in the UK.” Does this sound familiar?
The British pound fell on the news and continues to lose value even with better than expected retail sales. For the US, the numbers are clearly deceiving as they reflect that the financial crisis didn't need all the money that was set aside. The official scorer for fiscal deficits, the CBO, will release its estimates on August 25th and they had a shortfall of $1.825 trillion estimated in May. It'll be interesting to see what they say about this and what the projections will be for 2010, 2011, and 2012. These will be ugly.