$223 Beeelion! A New Monthly Federal Deficit Record


Conclusion: The U.S. deficit issue continues to accelerate.  February 2011 was the largest monthly deficit ever, and ever is a long time.


Position: Short the U.S. Dollar via the etf UUP


Due to seasonality, February is typically a bad month for the federal budget deficit.  In fact, before February 2011, the prior worst monthly deficit on record was February 2010.  According to estimates from the Congressional Budget Office (CBO), the Federal budget deficit for February was $223BN which is an increase of about 1% from February 2010. 


Revenues actually grew year-over-year by 3%, which is marginally positive.  This is also the 10th straight month of year-over-year revenue increases.  On the flip side, and despite all of spending cut rhetoric, expenditures were up 5% from February 2010.  The key driver here was a $4BN increase in interest expense, which was a function of more debt and marginally higher rates.


In the table below, we’ve outlined the year-to-date deficit numbers compared to 2010.  As usual, we’ve normalized for one time expenditures, such as TARP.  While revenues are showing a decent increase on a year-over-year basis, spending continues to accelerate and is up more than 5.3% in the first five months of the fiscal year.  The largest gaining expenditure line item on a percentage basis year-over-year was interest expense.


Year-to-Date Deficit ($B)


$223 Beeelion! A New Monthly Federal Deficit Record  - dj1


To the last point on the growing expense of interest, a recent report written by Mary Meeker on behalf of Kleiner Perkins titled, “USA Inc”, highlighted the heightening threat of interest to the federal deficit. According to Meeker:


“Last year’s interest bill would have been 155% (or $290 billion) higher if rates have been at their 30-year average of 6% (vs. 2% in 2010).  As debt levels rise and interest rates normalize, net interest payments could grow 20% or more annually.”


The sneaky thing about borrowing money is that the cost of borrowing increases the more you borrow.


In conjunction with writing this note, we took a look at the longer term budget history of the United States.  In the chart below, we show the budget deficit going back to 1968.  The chart shows a somewhat normal distribution of deficit spending and reduction and then beginning in the 2000 time frame, the deficit train wreck began.


$223 Beeelion! A New Monthly Federal Deficit Record  - budget


Given this February data and the long term trend, it is no surprise that we re-shorted the U.S. dollar today in the Virtual Portfolio via the etf UUP. In God we trust, but not in debt.


Daryl G. Jones

Managing Director

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more