About Alan:

Alan received a Masters in Accounting from the University of Houston, became a CPA and a Fellow in HFMA. He had a lengthy career in Healthcare Finance serving in positions such as: VP of Finance of the Healthcare Div. of HAI, VP of Finance for Cardinal Glennon Children's Hospital and CFO of Adena Health System. He specialized in budgeting, strategic financial plan development, operational analysis and management reporting systems.

This would seem to be good training for his role of "watch dog" of the Federal Budget.

Saturday, September 6, 2014

The Nation's Real Crisis

The summer updates to the Federal Budget are out and once again it looks like the WH OMB is playing games to keep from admitting the real status of our Federal budget.

2015 MSR vs 2015 Budget:
The WH OMB's MSR showed an increase in the 10 year projected deficits of $594 billion ($$5,524 vs $4,930).  That's not good news, but the news gets worse when you look at the details.

First, the increased deficit comes from a combination of lower Receipts ($761 billion) and lower Outlays ($167 billion).  The lower Receipts is spread among the three tax categories reflecting slower economic growth and personal incomes.  This follows recent news.  The decrease in Outlays is more than accounted for by a decrease in Net Interest Outlays ($180 billion) offset by an increase in Non-Defense Appropriated ($39 billion). 

Unfortunately it appears the WH OMB is back to playing games with the economic assumptions to achieve the savings.  They have decreased the maximum interest rate assumptions for both the 10 Year and 91 Day Treasuries.  The 10 Year rate was decreased from 5.1% in the 2015 Budget to 4.8% in the 2015 MSR.  Since 1961 (last 52 years) there have only been 17 years in which the 10 Yr Treasury averaged under 5% for the year.  5 of those years occurred in the early 1960's and the remaining 12 occurred since 2001.  Not one year in between (34 years) averaged 4.8% or lower.  In fact the average for those years was 7.9%.  Taking out the extremely low and high years the average since 1961 would be between 6.5% and 7.0%.  So how do those in Washington think 10 year Treasuries won't exceed 4.8% in the next 10 years when it was never that low from 1967 - 2001?  (The same problem exists with the inflation assumption values!)  When you use higher interest rate assumption values, the Interest Outlay projections increase significantly because of our high levels of debt.
 
2015 MSR vs CBO August Update:
The CBO put out an update to their Baseline estimates that is quite different from the 2015 MSR projections.  The 10 year deficits for the two are $7.196 billion (CBO) and $5,524 (WH OMB MSR).  The CBO projections have $1.1 less in Outlays, but $2.8 trillion less in Receipts.  So the WH is counting on significantly higher tax revenues to offset somewhat higher spending?
 
CBO Alternative Scenario:
The CBO put out an "alternative scenario" in which they projected what the 10 deficits would be if Congress followed their past actions, rather than what current law requires.  (I would call that scenario the REALISTIC SCENARIO.)  That scenario shows projected deficits for the next 10 years of over $9 trillion!
 
"Debt to GDP" and Others:
Washington continues to attempt to fool the world regarding its fiscal crisis.  The WH OMB, CBO and CRFB all quote that our debt to GDP level is currently ~73%.  That's the level of Public Debt to GDP and totally ignores the debt owed to the trust funds.  They also talk about the debt being at post WWII levels.  However following WWII, 90% of our total debt was Public Debt while at the end of 2013 only 71.6% of our debt was "Public" debt.  The Federal Government has used the trust funds to finance a much greater portion of its spending that it had at the end of WWII.
 
Finally, the WH OMB continues to include meaningless ratios in their presentation.  Just how meaningless?  If I told you that they show a deficit of only $128 billion over the next ten years you'd be confused AND MISLED!  But that's what they did when they included the ratio labeled "Primary Deficit".  They've began including that ratio in their summary presentations in the 2012 Budget projections.  It  had become clear they had no intention of eliminating the deficit, so they began using a ratio that would do it for them.  The "primary deficit" eliminates the Net Interest Outlays from the calculation.  This is important as Net Interest Outlays are ready to increase dramatically in future years exploding the size of our deficits.  Coming up with a ratio that takes Net Interest Outlays out of the picture takes the focus off of the real crisis, the size of our debt!

Unfortunately the Illegal Immigrant, ISIS and  Ferguson, MO crisis have taken the Nation's focus off of our pending financial crisis.  That makes it easy for all politicians, both Democrat and Republican!

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