April 2010 U.S. Treasury Statement: More Red Ink

The U.S. Treasury released its latest Monthly Treasury Statement on May 12 and revealed that for the second year in a row – and for only the third time since 1983 – outlays from the Treasury exceeded revenues during the month of April (click on graph for larger image).

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Surprisingly, the cumulative budget deficit is $2 billion smaller – so far in fiscal year 2010 – than it was last year. We expect the shortfall to widen and overtake 2009’s levels as the year progresses, however.

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The long-term picture is equally gloomy. The International Monetary Fund expects U.S. debt levels to exceed 100 percent of GDP by 2015. Moreover, Moody’s Investor Services forecasts that a debt crisis will hit the United States sometime between 2013 and 2018 – whenever 18 to 20 percent of federal revenue is consumed by debt service (i.e., interest) payments. Given the global fallout that has transpired in the wake of Greece's sovereign debt crisis (with $357 billion 2Q2010 GDP, or only 0.58 percent of the world's economy), the potential consequences of a similar turn of events in the United States is nearly incomprehensible.