US Budget Deficit and Monetizing Debt Crisis - USA Bailout Deficits Dont Matter

The USA bailout is monetizing debt as it is apparent both the Federal Reserve and US administration believe deficits don't matter. We continue to see more U.S. budget deficit records broken. Temporarily the European financial crisis, highlighted by the European Trillion dollar Emergency Fund diverted attention from the U.S. bailout game. Glance back to America posting the largest budget deficit record for April. The Dow fell 1000 points in hours and the US dollar has collapsed against the Yen, Swiss Franc, Australian Dollar and the Euro is starting to gain traction.

There is no doubt America is in a parlous state and the head in the sand a political cowering or extremism only intensifies the situation when countries monetize debt. What is interesting in America ther has been an attempt to avoid the unavoidable. How many times have you heard 'wow Greece is screwed up', 'Spain is screwed up' or similar. A mistaken belief that is if they are doing bad then we can’t be too bad. The Pygmalion effect has people believing in that thought process as pain is deflected, though in actuality it isn’t. The sheer magnitude of the deficit amount tends to be so overwhelming comprehending government bailouts is amiss. In simple terms the U.S.  Government has had 19 consecutive monthly budget deficits. This is the longest consecutive months on record, including the great depression. So if we survived the great depression than I guess deficits don't matter. That is the logic of the powers that be. 

Monetize the Debt

The budget deficit for April was $82.69 billion for the United States Treasury Department announced. To underscore that things aren’t improving fiscally for the U.S. this deficit is nearly four times April 2009’s deficit.

The fiscal year in budgetary term is September to September. The cumulative fiscal 2010 budget debt, the first seven months, totals $799.68 billion. This is slightly down from the first seven months of fiscal 2009, which was an $802.3 billion deficit.

The Treasury said outlays for April were an April record. April outlays rose to $327.96 billion from $218.75 billion in March. There were up significantly from $287.11 billion in April 2009.

Repayments of bank helped decrease spending to $1.99 trillion (these numbers are amazing aren’t they?) The comparable 2009 period spending was $2.06 trillion.

Income Taxes continue to illustrate the hardships on the American people. April Receipts, which are predominately taxes, were $245.27 billion, lower than the $266.21 billion taken in during April 2009. They were higher than the $153.36 billion receipts in March as you would expect from tax collections.

Who much have incomes been affected in this financial crisis? April 15 was the filing deadline for paying 2009 taxes and receipts from individuals fell to $107.31 billion from $137.67 billion in April 2009.

Deficits Don't Matter

The size of the deficit continues to surprise the more hopeful of economic analysts but most market players are not surprised. The poor fiscal management of the US Administration and the printing press policy of the US Federal Reserve have made austerity an absent word in the American English dictionary. Yet we expect the rest of the world to practice austerity.

Estimates for the total deficit for the 2010 fiscal year are $1.5 trillion, up from $1.4 trillion in 2009. Though this may well be a way-underestimating thing. When things a bad, surprises are often unexpected, these events are called Black Swans and in the past few weeks we had two, the 1000 point drop on the DOW and the BP oil spill which is now more than likely the biggest environmental calamity in history. These events add to debt and add to funding costs.

The spin from the Treasury Department officials is that April had five Fridays in 2010. Granted this would account for some of the higher deficit because Friday is payday in many Government departments. This however doesn’t justify a fourfold increase; the budget deficit in April 2009 was $20.91 billion.

Not only have we seen 19 consecutive monthly budget deficits in the U.S. To further illustrate how impotent the US Administration is to alleviating any of the financial crisis for Americans, 43 of the past 56 Aprils had a surplus, Here is the key and why this is an indicator of a poor economic situation, the reason a surplus is seen in the majority for Aprils is April is when any unpaid U.S. taxes become due. We don’t have profits, we don’t have jobs, and we don’t have taxes. A very simple formula.

Where are we headed? I would have to agree with Chris Edwards of the libertarian Cato Institute think-tank. Edwards said today 'I don't think the leadership of either party is taking the deficit seriously.' Which brings me back to Greece, only a day or so ago I saw US President Obama discussing with the Spanish leader what they need to do to solve the Spanish economic wows. I thought isn’t that a bit rich?

What happens to the U.S. financial markets if lawmakers in America continue to avoid tackling the U.S. deficit and persist in spending money and crushing Middle America? The Maelstrom that could be unleashed would make the Europe debt problems a mere warm up to the main game.

White House budget director Peter Orszag said before he resigned that the United States must reign in its deficits quickly or America is looking at a Greek like debt crisis. There seems to be recognition in the hot winded diatribe from these guys but where is the substance and follow up. You can only create diversions for so long. What we don’t need is any more U.S. budget deficit records broken but we now live under the mantra that deficits don't matter.

We are approaching QE II I look across and I see Gold trading at a record 1307 per ounce, Euro 1.3600 to the dollar, Australian dollar at .9640, Swiss Franc 9780 and dollar yen at 83.42. This is clear evidence of monetizing the debt and the consequences of a fiat currency. We are witnessing the bailout game that is the USA bailout. Where to now people?