Monday, January 3, 2011

Expanding Deficit - Revenue or Spending Problem? UPDATED

Steve commented on my BWD post that the reason that the federal deficit is growing is due to decreasing federal revenue. Because of Hauser's law, I opined that it must be due to rising spending. I pulled up this chart from the Heritage Foundation to check the facts. What do you think?

Fed Spending Growing Faster Than Fed Revenue

In case I lose the link:

However, I am a little mystified at the rate at which the debt is climbing, it does not appear to be fully explained by either the rise in spending nor the fall in revenue. The deficit is climbing at a rate of $2 trillion per year, where as the gap between revenue and debt only recently peaked at $1.5 trillion per year. From CBS News:

Anyone who knows the answer to this mystery, I am anxious to hear from you.


W.C. points out in the comments that I am not the first person to have noticed that the debt is growing faster than the deficit would suggest, pointing out that Zero Hedge and Denninger had commented, without concise conclusion, there seems to be a general consensus that the difference is accounting gimmicks. Adam Freund suggests that it is a failure to account for interest on the debt. Thanks for the further insight.


  1. It might be the case that payment on the debt interest is not being factored into spending on the one graph. That might account for the shortfall.

  2. This was discussed at Zero Hedge, and while there's no concise conclusion, there seems to be a general consensus that the difference is accounting gimmicks.

    Denninger is on it too.

    My favorite explanation is off-balance-sheet garbage like AIG, Fannie and Freddie.

  3. Accounting gimmicks? No way.

    I'm with you, W.C. Do we yet have a real handle on the quantity of toxic debt that Fannie and Freddie are holding? I never here this being discussed.

  4. Adam, W.C., Dean,
    Thanks for commenting. I read the links provided by W.C. and can't say that this mystery is fully explained. I am inclined to believe that off-budget garbage are to blame, why is the debt issued ratio to deficit spending almost always equal 150% exactly, as Zero Hedge points out?