FISCAL TREND DIGEST The only daily in-depth

analysis of fiscal trends

The Government is 30% of GDP! anywhere.

Wednesday, September 9, 2009 Vol I Issue 2

Fiscal Drag Meter Current Condition: Code Blue

High drag

Code Red Extraordinarily high level of fiscal drag. Gov’t running a surplus. Extreme caution is advised
Code Orange Fiscal drag rising sharply. Balanced budget or moving there.
Code Yellow Deficit below 1% of GDP. Economic growth likely to slow.
Code Green Deficit rising. Fiscal drag declining. Economy and markets on growth path.
Code Blue Fiscal drag very low. Deficit at highest level in years. Growth to exceed anything of recent memory.
Code Violet Deficit highest in generations. Fiscal drag almost nil. Powerful economic growth and market surge of
Low drag

enormous proportions to follow.

Figures in billions $ Nominal % of Surplus/Deficit as a % of GDP

GDP
3%
Deficit 1440 10.2%
Tarp 363.7 2.6% -3%
01 07 15 21 27 33 39 45 51 957 963 969 975 981 987 993 999 005
FDIC 34 0.2% 19 19 19 19 19 19 19 19 19
Tarp expenditures
1 1 1 1 1 1 1 1 2
-8%
Unemployment
Insurance 106.3 0.8% 90x more than-13%
Interest on debt 166.5 1.2% Food stamps! -18% What’s the big deal??
Medicaid 231 1.6%
-23%
Medicare 467.3 3.3%
SS 524.3 3.7% -28%
Food stamps 4.1 0.03% -33%

Tarp expenditures are almost as much as Medicare and it When you put the deficit in perspective it’s hard to see
did nothing to add to aggregate demand. Tarp what all the fuss is about. Just a little bigger than the
expenditures are also 90 times greater than food stamps! Reagan deficits.

Treasury Deposits and Withdrawals

Total deposits for the first four business days of Total Withdrawals
September totaled $127.6 billion. That compares to
250,000
$176.9 billion over the first four days in August and
$188.7 billion one year ago. Total withdrawals were 200,000
$202.5 billion compared to $214.7 billion and $189.9
millions $

150,000 Aug
billion a year ago. Fiscal year-to-date deposits to the Sep
Treasury total $11.34 trillion and withdrawals are 100,000 Sep '08
$11.45 trillion meaning net withdrawals are exceeding
50,000
deposits by $110 billion. The gross deficit so far in
September is $74.95 billion, which compares to a 0
gross deficit of $37.7 billion over the same period in 1 2 3 4
August. statement day of month

Total Deposits Monthly Gross Deficit/(Surplus)

200,000 (total withdrawals minus total deposits)
90,000
150,000 Gross deficit spending
70,000
starts off strong in Sep
millions $

Aug 50,000
millions $

100,000
Sep
30,000
Sep '08 Aug
50,000 10,000 Sep
-10,000 Sep '08
0 1 2 3 4
1 2 3 4 -30,000

statement day of month statement day of month

 Daily Deficit Trends and Stocks

10000 1040
The 5-day average of withdrawals minus deposits is
-$1.9 billion. While that’s better than the -$13.1 billion
1030 reading of a week ago, it’s still negative. Some
5000
1020
pullback likely in stocks, however, any dip should be
bought as September’s gross deficit is quite high and
0 5-day avg of
1010 that is supportive.
26-Aug

1-Sep

2-Sep

3-Sep
25-Aug

27-Aug

28-Aug

31-Aug

4-Sep
net w ithdraw als

1000 S&P 500

-5000
Short-term trading Recommendation: Go short into
990
strength; cover and reverse on support.
-10000
980
Go short Dec S&P emini @ 1022.50, take profit
-15000 970
and reverse at 997.00.
Public Debt Sales and Redemptions

Total Public Debt Sales Total Public Debt Redemptions

160 160
140 140
120 120
billions $

100

billions $
Aug 100 Aug
80 80
Sep Sep
60 60
Sep '08 Sep '08
40
40
20
20
0
0
1 2 3 4
1 2 3 4
statement day of month
statement day of month

Net Redemptions (Redemptions-Sales)

Public debt sales over the first four statement days in
Sept were $92.34 bln compared to $134.27 bln for
15 the same period in Aug. Redemptions were $101.14
10
bln vs $140.88 bln. Net transfer to depository
5
0 institutions so far is $8.80 bln. Sep ‘08 public debt
billions $

-5 1 2 3 4 Aug issues totaled $142.32 bln for the same period and
-10 Sep redemptions were $112.9 billion for a net transfer
-15 Sep '08
-20 from depository institutions of $29.42 bln. Total public
-25 debt sales for the FYTD come to $8.53 trillion while
-30 redemptions total $6.89 trillion. This constitutes a net
-35
transfer from depository institutions of $1.64 trillion or
statement day of month
equal in size to about 78% of the Fed’s balance sheet!

Gross Deficit and Treasury Futures

The gross deficit (withdrawals minus deposits) for
Gross Deficit vs Nearby 10yr Treasury
the first four business days of September totaled
$74.95 billion, meaning that reserve accounts were 80,000 118.20
credited by that amount. Some or all of these funds 70,000
Gross
118.00 Deficit
will be used to purchase Treasuries. Expect
Treasury futures prices to trade higher over the
60,000
Likely to trade higher
117.80
nearby future
millions $

50,000
next several days. 40,000
117.60 10-year
Treas
117.40 nearby
30,000
Short-term Treasury futures trading 20,000
117.20
future

recommendation: Buy weakness. 10,000 117.00

0 116.80
Go long Dec 10-year note futures at 116-27. 1-Sep 2-Sep 3-Sep 4-Sep
Take profit at 118-01.

Wednesday, September 9, 2009 • contrarianmedia@hotmail.com • ©Fiscal Trend Digest 2

 Federal Tax Deposits

Employment Tax Deposits Total Tax Deposits

45,000 45,000
40,000 40,000
35,000 35,000
millions $

30,000 30,000

millions $
25,000 Aug Aug
25,000
20,000 Sep Sep
20,000
15,000 Sep '08 Sep '08
15,000
10,000
5,000 10,000
0 5,000
1 2 3 4 0
1 2 3 4
statement day of month
statement day of month

Employment tax deposits for Sep so far total $28.72 bln while total taxes collected equal $29.46 bln. This
compares to $31.79 bln and $32.6 bln respectively for the same period in August and $38.6 bln and $39.9
bln for Sep ‘08. For the FYTD total employment taxes collected are $1.59 trillion while total taxes collected
come to $1.85 trillion as compared to $1.69 trillion and $2.07 trillion, respectively, for the same period
one year ago. Results so far for September do not indicate any improvement in hiring or general economic
activity, although signals are mixed. Last month’s average daily tax receipt exceeded July’s result, offering
a glimmer of hope of some improvement in both the job picture and the overall economy.

Economic Indicators

Consumer Credit (y-o-y % change) need to be addressed, such as U.S. trade and budget
8.0% deficits.
6.0%
The only way to achieve large gains in comparative
4.0% advantage so as to boost export export growth in any
2.0%
significant way is by suppressing wages of workers and
keeping the currency weak. This appears to be the tack the
0.0%
Administration is taking as real earnings remain under
6 6 6 6 7 7 7 7 8 8 8 8 9 9 9
-2.0%n-0 r- 0 ul-0 t- 0 n-0 r-0 ul-0 t- 0 n-0 r-0 ul-0 t- 0 n-0 r- 0 ul-0
c J a Ap c Ja Ap c Ja Ap
pressure along with the dollar.
Ja Ap J O J O J O J
-4.0%
Largest y-o-y contraction Workers only earning as much
-6.0%
since 1944! as they were in 1980!
Consumer credit contracted by $21 billion, which was the Real Average Weekly Earnings
largest month-to-month contraction since they started 285
keeping records on this series going all the way back to
280
1943. The year-over-year percentage decline was the
275
biggest since April 1944.
270
Consumer credit is falling because people are out of work 265
and incomes are not rising. The Administration has been 260
trying everything to get credit flowing again but doesn’t
255
seem to understand a basic, fundamental concept, which is,
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
that loans and credit are a function of the economy and if 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20
the general economy is weak, then banks will not be making
loans and credit in general will not be in demand. It’s not
that it is hard to come by; it’s just that the demand for it is As long as policy is being designed to address these
drying up as consumers and businesses pull back. so-called, imbalances, then there is not likely to be
a big upturn in consumption and, therefore,
In a larger sense, the Administration is doing everything it consumer credit will continue to remain in a secular
can to change the nature of the U.S economy from one that contraction. New drivers for the economy will
is consumption driven to one that is export driven. This is emerge in the form of sustained, higher government
based on the view that there are global “imbalances” that spending and net exports. investment

Wednesday, September 9, 2009 • contrarianmedia@hotmail.com • ©Fiscal Trend Digest 3

 Federal Reserve Data

Factors affecting reserve balances Federal Reserve Permanent Monetary Operations

All Figures in million $ (Treasury and Agency)
Past week
All figures in millions $
Total
Week ended Change from Change from Operation Date: 09/08/2009
9/2/09 prior week 9/3/08 Operation Type: Outright Coupon Purchase
2,119,031 + 14,457 +1,172,703 Settlement Date: 09/09/2009
Maturity/Call Date Range: 05/15/2016 - 08/15/2019
(selected entries) Total Par Amt Accepted (mlns) : $4,950
Central bank liquidity swaps Total Par Amt Submitted (mlns) : $14,486
Week ended Change from Change from
Operation Date: 9/3/2009
9/2/09 prior week 9/3/08 Operation: Outright Agency Coupon Purchase
63,287 + 3,077 + 1,287 Settlement Date: 9/4/2009
Total Par Accepted: *3,779
Federal agency debt securities Total Par Amt Submitted: *7,558
Week ended Change from Change from
9/2/09 prior week 9/3/08 Operation Date: 09/01/2009
118,226 + 4,037 + 118,226 Operation: Coupon Purchase
Settlement Date: 09/02/2009
Maturity/Call Date Range: 05/15/2012 - 11/15/2013
Mortgage-backed securities Total Par Accepted: 5,600
Week ended Change from Change from Total Par Amt Submitted: 17,038
9/2/09 prior week 9/3/08
624,371 + 107 + 624,371 Operation Date: 08/28/2009
Operation: Outright Agency Coupon Purchase
Settlement Date: 08/31/2009
Total Par Accepted: 1,945
Total Par Amt Submitted: 4,700

Reserve Balances Operation Date: 08/26/2009

Operation: Coupon Purchase
1000 Settlement Date: 08/27/2009
900 Maturity/Call Date Range: 11/15/2026 - 08/15/2039
800 Total Par Accepted: 2,299
700
Total Par Amt Submitted: 7,440
billions $

600
500
400
300
200
100
0 Fed Funds: Effective Rate vs. Target Rate
Nov-08

Jan-09

Jun-09
Jul-09
Jul-09
Feb-09
Mar-09

Aug-09
Sep-08
Oct-08

Dec-08
Dec-08

Feb-09
Oct-08

Apr-09

May-09
Apr-09

Change in Reserve Growth Since Beginning of Year

(month-over-month)
10.0%
5.0%
0.0%
Jun-10

Jun-24

Jul-08

Jul-22
Apr-01

Apr-15

Apr-29
Feb-04

Feb-18

Aug-05

Aug-19
Mar-04

Mar-18

May-13

May-27

-5.0%
-10.0%
Fed Balance Sheet
-15.0%
2,200,000
-20.0%
2,150,000
-25.0% 2,100,000
millions $

-30.0% 2,050,000
-35.0% 2,000,000
1,950,000
1,900,000
1,850,000
1,800,000
7 7 7 7 7 7 7 7
1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/

Wednesday, September 9, 2009 • contrarianmedia@hotmail.com • ©Fiscal Trend Digest 4

 Loans and Banking

Total Loans and Leases at Commercial Banks Total Bank Credit

(month-over-month since beginning of year)
0.5% 9400
0.0%
9350

Jun-10

Jun-24

Jul-08

Jul-22
Feb-18

Aug-19
Feb-04

Mar-04

Aug-05
Mar-18

Apr-01

Apr-15

May-13

May-27
Apr-29
-0.5%

billions $
-1.0% 9300
-1.5%
-2.0% 9250
-2.5%
9200
-3.0%
-3.5% 9150

Jan-07
Jan-21

Jun-10
Jun-24
Jul-08
Jul-22
Feb-04
-4.0%

Feb-18
Mar-04
Mar-18

May-13
May-27
Apr-01
Apr-15
Apr-29

Aug-05
Aug-19
-4.5%
-5.0%

Demand Deposits at Commercial Banks Loan creation

550 continues to fall
500 despite low interest
450
rates and the claim
that the Fed is “printing money.” Total loans and
400
leases at commercial banks have fallen from a peak
350 of $7.3 trillion in October 2008 to $6.9 trillion as of
300 August. Loans are now contracting at a 4% pace
this year alone. Total bank credit has dropped by
250
nearly $200 billion in that time and has only
07

08
8

09
7

09
07

08
08
08

9
-0

-0
-0

managed to perform better than lending because of

r -0
b-

b-
n-

n-

n-
g-

g-

ct-
r-
c

ec
ct

De
Ju

Fe

Ap

Ju

Fe

Ap

Ju
Au

Au
O

the growth in new demand deposits.

Household Debt and Financial Obligations

Financial Obligations Ratio The Fed’s Financial Obligations Ratio (FOR) is an

12% 20.00 estimate of the ratio of debt payments to disposable
10% personal income. Debt payments consist of the
19.00
8% estimated required payments on outstanding
6%
18.00
mortgage and consumer debt. The financial
yr-o-yr % change
4% obligations ratio also includes automobile lease
Finc'l Oblig Ratio
2% 17.00 payments, rental payments on tenant-occupied
0% property, homeowners' insurance, and property tax
16.00
1984

1987

1996

2008
1981

1990

1993

1999

2002

2005

-2%
payments to the debt service ratio. This ratio has
-4%
15.00 gone from a peak of 19.38 in July 2007, to 18.5 or
-6%
about a 5% correction. It represents and improved
-8% 14.00
financial position for households.

Glossary

Deposits - receipts taken in by the Treasury

Withdrawals - payments made by the Treasury
Mtd - Month-to-date
y-o-y - Year-over-year
Fytd - Fiscal-year-to-date
m-o-m - Month-over-month
Depository institution - an institution such as a bank that is authorized to accept deposits
Public debt sales - Public sale by the Treasury of bills, notes, bonds or other securities. Action causes
reserve accounts to be debited.
Public debt redemptions - Treasury securities redeemed by the public. This action causes reserve accounts
are credited.

Wednesday, September 9, 2009 • contrarianmedia@hotmail.com • ©Fiscal Trend Digest 5