PeakTrader.com Forum Index PeakTrader.com
Economics, Portfolio Optimization, and Technical Analysis
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 
Log inFast Charts

Federal Budget Deficit

 
Post new topic   Reply to topic     PeakTrader.com Forum Index -> Articles
View previous topic :: View next topic  
Author Message
administrator
Site Admin


Joined: 28 Dec 2005
Posts: 11966

PostPosted: Sat Dec 06, 2014 12:56 am    Post subject: Federal Budget Deficit Reply with quote

http://finance.yahoo.com/news/why-lower-government-deficits-won-t-last-170139247.html

The government’s budget deficit dropped to $483 billion for the 2014 fiscal year, which ended in September. That’s just 2.8% of GDP, while the deficit historically has averaged about 3.1% of GDP. That’s a huge improvement compared with 2009, when the deficit hit an astonishing record high of $1.4 trillion, or nearly 10% of GDP. The improving budget picture has subdued critics of federal borrowing and neutralized threats to shut down the government over improvident spending.

But much of the improvement in the government’s finances is due to temporary factors that will lapse, according to new analysis from the Federal Reserve Bank of Kansas City. The bank’s researchers cite four reasons the budget relief won’t last:

Unusual profits at the Federal Reserve. The Fed’s quantitative easing programs have basically turned it into a huge institutional investor earning returns on a bond portfolio valued at more than $4 trillion . The Fed is required to turn most of its profits over to the Treasury, and since 2010 it has contributed $325 billion to government revenue, or $81 billion a year. Before QE, the Fed turned about $35 billion per year over to the Treasury. The Fed ended its bond purchases in October, and its net income ought to drop as bonds in its portfolio mature and its overall holdings decline. It’s also possible, though not likely, that the Fed could lose money and require a taxpayer infusion, if interest rates were to rise sharply and it needed to sell assets for some reason.

An unexpected windfall from Fannie Mae and Freddie Mac. The government’s two mortgage-finance agencies, Fannie (FNMA) and Freddie (FMCC), have gone from being insolvent operations dependent on a $187 billion taxpayer bailout to very odd federal profit machines. The two agencies combined earned $129 billion in profit last year, which is nearly four times what Apple (AAPL) or Exxon Mobil (XOM) earned. Like the Fed, Fannie and Freddie’s profits go to the Treasury, and remittances have now more than covered the $187 billion bailout. At some point, Congress will have to find a way to privatize or slim down the two agencies. Until then, however, the outsized profits ought to continue, since Fannie and Freddie have a monopoly on the mortgage-securitization market and private firms aren’t likely to re-enter the business until they feel they’re on a level playing field with government competitors.

Changes in “automatic stabilizers.” During a recession, economic activity typically declines and federal tax revenue falls along with it. At the same time, there’s usually a jump in federal benefits to the needy such as food stamps and unemployment insurance, which happens automatically, with no need for new laws or policies. Such stabilizers added more than $1.5 trillion to deficits over the last seven years, but they’re winding down now. They’ll push deficits back up the next time there’s a recession, however.

A subdued economy. Federal revenue is more than $500 billion lower than it would be if the economy were operating at its full potential, the Fed researchers estimate. That’s better than a few years ago, when the portion of the deficit due to an underperforming economy was closer to $800 billion. But there’s no guarantee that improvement will continue.

Overall, the Fed researchers estimate that about half of the improvement in the deficit since 2010—roughly $385 billion annually—is due to temporary factors that may not last. They don’t put a number on future deficits, but the Congressional Budget Office expects the deficit to hit a low of around $450 billion in 2015, then begin to rise gradually. Deficits should begin to swell more aggressively around 2020, as baby boomers flood into retirement and begin to stress the funding for Social Security and Medicare.

Congress, of course, could pass new legislation to fix the government’s finances for good, by raising taxes or cutting spending. But lower deficits actually give them more reason than ever to put that off.

---
Back to top
View user's profile Send private message
Display posts from previous:   
Post new topic   Reply to topic     PeakTrader.com Forum Index -> Articles All times are GMT - 8 Hours
Page 1 of 1

 
Jump to:  
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Powered by PeakTrader 2.0.8 © 2001, 2002