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“Mama take this badge from me, I can’t use it anymore,

It’s getting dark, too dark to see.”

-Guns N’ Roses, “Knocking on Heaven’s Door”

Conclusion:  Could the United States really go bankrupt? No, not as long as she can print money. That said, the recently reported six month deficit number was -$831BN.  This is not positive for the U.S. dollar.


The Department of Treasury recently reported the U.S. Federal government budget deficit for March at $-189BN.  This was $124BN more than the deficit in March of last year, though this incorporates a restatement of $115BN related to TARP for March 2010.  According to the CBO:

“Specifically, the Treasury reported a reduction for that program of $115BN in March 2010, reflecting a significant decline in its estimated net costs.”


So, it seems that Treasury overstated the cost of TARP, by $100BN+, which is at face value positive, but if TARP is a 1-time expenditure, why then is this month’s deficit $124BN more than last March if neither month incorporates TARP spending? Did the U.S. federal deficit really grow 186% year-over-year?  Well, according the CBO, whose numbers we’ve outlined in the table below, the answer is yes.

Federal Deficit Update: Is the United States Knock, Knock, Knocking on Bankruptcy’s Door? - 1

Setting aside the TARP adjustment, year-over-year growth in the deficit for March still grew 3.2% year-over-year.   The key drivers on the spending side of the equation include $3BN more spending on Medicare, $3BN more in net interest on public debt, $2BN more in social security, and $2BN more in education.

In the year-to-date, the deficit numbers are as dismal as the monthly numbers.  The preliminary deficit for the first 6 months of the fiscal year was $-830BN, which is a $113BN increase versus the same period last year.   While revenues were up $66BN year-over-year, expenditures by the Federal Government were up an amazing $179BN. 

Once again, though, the Treasury Department offers us adjusted numbers for the full year, which suggest that expenditures only grew by 1% year-over-year if we add back the adjustment for TARP.  Although, interestingly, in its analysis the CBO actually does not back out spending from ARRA (American Recovery and Reinvestment Act) in 2010, which was $30BN in the comparable period. 

In the table below, we’ve simply laid out key expenditure line items and their year-over-year rate of change.  For purposes of this analysis, we left out the historical adjustments to TARP.  Every single line item grew on a year-over-year basis except unemployment.  Not exactly great cost containment by the Federal Government in the first six months of this fiscal year.

Federal Deficit Update: Is the United States Knock, Knock, Knocking on Bankruptcy’s Door? - 2

In the last chart below, we’ve shown the monthly U.S. federal deficit numbers going back three years.  This chart is about as ugly as it gets for the fiscal outlook of a country.   In the last 36 months, the U.S. federal government has run a deficit in 33 of 36 months.   Clearly, if those were the cash flows of a company, it would have been in bankruptcy protection months, if not years, ago.

Daryl G. Jones

Managing Director

Federal Deficit Update: Is the United States Knock, Knock, Knocking on Bankruptcy’s Door? - 3