Obama to Reduce Budget Deficit on 'Fewer' than Expected Bank Failures

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 |  Includes: CORS, GFG-OLD
by: Tyler Durden

Archive this one for the funny pages. It has been leaked by administration officials (and sponged up by Bloomberg), that on August 25, when the CBO releases its updated budget estimate, the 2009 deficit is expected to decline from $1.825 trillion to $1.58 trillion. And, get this, one of the reasons for the reduction is the FDIC spending $78 billion less, presumably due to "fewer bank failures than the administration anticipated."

Pardon us, but last time we checked, not only did the FDIC have no cash left in the FDIC, and was effectively in a debtor position vis-a-vis the administration, but of the top 4 banks pending for blow up, Colonial was under (granted with some arbitrarily optimistic loss expectations), Guaranty (GFG-OLD) was about to be hawked over to a few siesta loving left midfielders, and Corus (CORS) was about to... well, we are not quite sure what the hell Corus is doing these days.

Furthermore, YTD something like 76 banks have already blown up. But for some odd reason this will now be spun as a positive, and the FDIC will get a commendation for not only letting a staggering number of banks go under (a record, except for the S&L crisis), but for actively mismarking the FMV of the loans carried by these books and thus papering over the full impact from bank failures to the DIF.

The deficit will amount to 11.2 percent of the nation’s gross domestic product, with spending totaling $3.653 trillion and revenues amounting to $2.074 trillion, the official said. In May, the administration had pegged this year’s deficit at $1.84 trillion. The estimate is for the fiscal year ending Sept. 30.

Whether anyone is gullible enough anymore to buy any optimistic budgetary projections is hopefully not debatable: just a week ago the CBO announced that the July deficit was set to grow by $181 billion.

In the grand scheme of things, the budget deficit will likely end up being revised substantially higher in Q4, but by then the economy will likely be reeling by nearly a trillion more in treasury auctions (and don't exhale or the house of treasury cards will collapse, and if we have an auction failure all bets are off), plus the new progressive tax rate will likely already be made effective... The re-revised budget will thus likely end up being swept under the rug at a time when the economy is sure to have much more critical matters to deal with.