Submitted by Michael Lombardi via Acting-Man blog,

Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion.

But hold on a minute…

The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year!

Since the beginning of the U.S. government’s current fiscal year 2013, which began in October of last year, the government has posted a budget deficit in six out of the past eight months.

The Department of the Treasury just reported the U.S. government registered a budget deficit of $139 billion for the month of May. The federal government took in $197 billion and paid out $336 billion for the month. (Source: Department of the Treasury Financial Management Service, June 12, 2013.)

Comparing it to last year, May 2013’s budget deficit was 11% higher than that of May 2012.

The government has been raking in a budget deficit of over one trillion dollars in each of the last four years; and with four months still left in this fiscal year, it wouldn’t surprise me to see us register a fifth consecutive year of trillion-dollar-plus deficits, despite being repeatedly told by politicians that our budget deficit this year would come in under $800 billion.

This is troubling news; the more budget deficits the U.S. government registers, the more the national debt will increase, and the more the government will need to borrow to pay for expenses. It’s that simple.

Currently, our national debt stands at $16.9 trillion. (Source: www.investmentcontrarians.com, last accessed June 14, 2013.)

The ratio of the U.S. national debt to the gross domestic product (GDP) of the U.S. economy is close to 110% percent. This means that we owe more than what we produce in one year.

The chart below shows a gruesome picture of our national debt compared to U.S. GDP. Notice the rate of change since 2008—it is skyrocketing.

Chart copyright Lombardi Publishing Corporation, 2013; Data source: Federal Reserve Bank of St. Louis, June 14, 2013 – click to enlarge.

The U.S. has been the family that spends more than it earns for many years now. In the short term, spending more than one takes in can work (especially if the Fed just prints new money and gives it to the government to pay its bills). But in the long term, if fundamental changes are not made to the government’s spending habits, financial chaos just starts all over again.

Posting a budget deficit year after year is not sustainable. The debt-infested eurozone nations did very much the same; they borrowed to spend. Look where they are now.

Michael’s Personal Notes:

Finally, some good economic news is coming to the U.S. economy …

The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.

And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.

While this is all good news, my concerns about the U.S. economy remain…

Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending vigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.

As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.

But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there are almost 12 million people who are jobless in the U.S. economy; more than 15% of the U.S. population is on some form of food stamps, and that number has been increasing at a serious pace.

Last but not least, there are still millions of Americans in the U.S. economy who are living in a house with negative equity - their house is worth less than the loan on their home.

The minor “pop” we are seeing for some U.S. economic numbers could turn in the wrong direction very quickly. Troubles from the global economy will eventually move into the U.S. economy. Retail sales and consumer confidence increasing is certainly a step in the right direction, but I wouldn’t break out the champagne yet.



Michael Lombardi is the founder and head of Lombardi Publishing Corporation (News, Analysis, and Information Services) in New York. He provides his market insights in articles in the 'Profit Confidential' service.