The Federal Deficit and You
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Watch out -- you're about to hit your head on the debt ceiling (again). And that is going to make Mom mad!
The federal deficit was $47 billion lower in the first quarter of the 2012 budget year than the same time last year. Nonetheless, President Obama is in a position of having to ask Congress for $1.2 trillion.
No big deal. Just a trillion dollars. Who doesn't have a trillion dollars sitting around? Oh, right, US.
The Treasury Department announced Thursday that the deficit was $86 billion in December. Wondering why? They're blaming a difference in accounting when payments are due this year. Have you ever had to go to your dad and say, “I didn't budget properly and I need to borrow a few bucks because my bills are sooner than I thought wanted them to be?” And buy "a few bucks," you really mean $1.2 trillion?
The Congressional Budget Office estimates the government will run up a $973 billion deficit for the entire 2012 budget year. That is lower than 2011's $1.3 trillion imbalance, but not by much. “It's okay, Dad, I screwed up better this time.”
The government ran an all-time record deficit of $1.41 trillion in fiscal 2009, and a $1.29 trillion imbalance in 2010. “See Dad? I'm getting better.”
Here's the catch, Dad said last time you had to ask for money that he would help you out again. But before he will do it, you have to jump through hoops designed to keep you from having to ask, in case you do ever have to ask again. Dad's can be smart and tricky that way.
Last year, as part of the White House’s deal with Republicans to avert a potential default on the U.S. debt, both sides agreed to raise the debt ceiling $2.1 trillion, but to do it in two steps. So in August, they immediately raised the debt ceiling $900 billion. In order to raise the ceiling another $1.2 trillion, Congress must first have the opportunity to formally disapprove or block the increase.
In other words, Dad gets to decide if you deserve it.
Dad is highly likely to give you the money, but he's out of town and you have to wait for him to get back. And then he has 15 days to decide if you get the money. But again, he's highly likely to give you the money, because the alternative is akin to watching you completely self-destruct.
But there is a little roadblock in your way -- Mom. She's out campaigning in South Carolina this week, wearing those "red" shirts she loves so much. And you better believe she is going to have a whole lot to say about this situation. Dad likes Mom, and wants to keep her happy, so he is going to let her rant and rave till she's blue redder in the face. But in the end, after her posturing, Mom will refuse to admit that Dad has no other choice than to give you the money, because, really, she has no control over whether he gives it to you or not.
In the meantime, the Treasury Department (that would be your Citibank account), has several tricks up its sleeve to buy some time. A little more intricate than using your Visa to pay the Mastercard off so you can make your Ford car payment, the Treasury will suspend investments in the exchange-stabilization fund, a reserve account for foreign exchange needs. And if they (you) need more time than that, federal pensions will take a hit (which means Mom's crusade down in South Carolina is going to become very popular).
You know you have no way of actually paying your dad off. Your debt is higher than your income, and you have failed time and time again to balance your budget. (Which has a lot to do with why Mom is off in South Carolina campaigning for your job.)
Truthfully, all you need to do is figure out how to make some serious financial cuts, and stick to them. Everyone has been telling you this for years. Yes, it will hurt. Sure, your friends will be mad when you can't do as many things as you used to. But it would be the smart thing to do. So man up and do it.
But on the bright side, if Dad gives you the $1.2 trillion, you won't have to ask for help again until late 2012 or early 2013.
If you had shares in these companies, maybe you wouldn't be asking Dad for money in the first place:
Coach Inc. (NYSE: COH) is trading with a relatively high multiple (15.73 times expected earnings for June 2013 fiscal year) that can be accredited to Coach’s reliable growth. Due expansion and loyal customers in the more affluent Asian market, many luxury goods are continuing to sell well.
Communications and media company Shaw Communications Inc. (NYSE: SJR) announced a 19% increase in revenue in the first fiscal quarter, a 28% increase in earnings, and an increase in the equivalent annual dividend rate to $0.97 a share. The new dividend rate represents a yield of 4.7%.
The Ellsworth Fund Ltd. (NYSEMKT: ECF) announced their one hundred and second quarterly dividend. The 6.25 cents ($0.0625) per share dividend is payable from net investment income and represents an increase of $0.0015 over the previous year's first quarter dividend.
Motley Fool newsletter services recommend Coach. The Motley Fool owns shares of Coach. ErinAnnie has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.