We will give a very brief comment on the latest budget data released by the Treasury. The reference period is the fiscal year 2010.
The annual budget deficit stands at $ 1291 billion, or $ 259 billion less than the deficit anticipated by the US Treasury. The US has therefore reduced the budget squeeze because of an increased risk of sovereign debt.
This reduction is reflected in the US fiscal deficit. While the fiscal deficit was expected at $ 1850 billion, it is only $ 1652 billion, or $ 198 billion less than expected.
It will be necessary to wait for the publication of the December Treasury Bulletin to determine why the fall in budget expenditures is not reflected in the growth of the financial debt. One can think that the Treasury, borrowing for the sub-federal administrations off budget, had to abound the caisses of American territorial authorities in difficulty. This is the most likely hypothesis.
If we focus on the budget deficit – integrating the expenditure of ministries, agencies, and social insurances – it appears that they are 1.78 points of GDP (Reference point of GDP in 2010 T2 = 14575: 100 = 145 source BEA T. 1.1.5 GDP) which was not injected during the 2010 fiscal year. Can the slowdown in the recovery find its explanation in this fall?
The fall of the credit injection did not happen anytime. As our chart shows, since the beginning of 2010, budget deficits have fallen. The cumulative effect of this slowdown was in T-2 2010 a marked drop in growth.
The thesis of a recovery on credit seems to indicate an extreme sensitivity of GDP growth to the downward trend in the budget deficit. We can anticipate the poor performance of the GDP of the T-3 2010 by considering the quarterly developments in spending.
The 2009 T-3 deficit was $ 383 billion and the 2010 T-1 deficit was $ 327 billion.
The 2010 T-2 deficit was $ 286 billion and the 2010 T-3 deficit was $ 289 billion.
It is therefore likely that the GDP performance of the 2010 T-3 should be close to that of the 2010 T-2.
We will refrain from giving a figure, but we can consider that a GDP above 2% would indicate that there is a small endogenous growth engine.
It will be necessary to wait for the publication of the GDP of the end of October and its consolidation during the two following months to check if the growth is always entirely on credit or if there is a draft of recovery.
For the moment we remain in a position established for a year. The recovery is fictitious because it replaces private indebtedness with public debt. If the crisis is a depression, we continue to think that the federal state has spent too much and not enough. Too much because it has degraded US sovereign debt, not enough because the level of public deficits is insufficient to get the country out of a depression.
The drama of the USA is that they no longer have the resources and the international financial credit to raise their budget and/or financial deficit to 20 points of GDP for 2 to 3 consecutive years. This was not the case during World War II when the US really came out of the depression. The product of their weakness seems to be the country’s commitment in a Japanese-style scenario: low-interest rates, rising public debt, poor growth.
So there remains the solution of the monetization of the debt. It is a temptation that starts to inspire the reflections of the FED, but not yet its policy. Contrary to alarmist rumors about a Fed willing to monetize the public debt with astronomical sums, the policy pursued by the FED aims to combat the risk of deflation by injecting liquidity covered by deposit-taking institutions (Bank, Credit Union and savings bank) who find their account. With a credit in full contraction, the supply of credits to the Fed – so-called excess reserves – to the insignificant advantage for the financial sector of contributing to the financing of the Treasury without running the risk of buying a sovereign debt whose objective observers know that it becomes more fragile every day.
This fragility is revealed in the FED’s purchase of treasury bills, but also in the guarantee of debt consolidation and issuance of treasury bills under satisfactory conditions. That this guarantee can be an admission of weakness does not seem to have had too much impact on investors. But financial distrust sets in slowly and always manifests itself as a sudden reversal. The markets are sheep.
The US entangled in a crisis, which no one sees the end, find themselves having to assume the insoluble effects of the rise for 30 years of imbalances. And when the imbalances produce their effects, the situation returns, insoluble contradictions appear, and the crisis lasts …