Monthly Budget Review: FY 2008 deficit and first TARP estimate

November 7, 2008

Today CBO released the Monthly Budget Review.

In fiscal year 2008, the federal government recorded a total budget deficit of $455 billion -- $293 billion more than the deficit incurred in 2007. As a share of the nations gross domestic product (GDP), the deficit rose from 1.2 percent in 2007 to 3.2 percent in 2008. That increase in the deficit of 2 percentage points of GDP reflected both a reduction in revenue (which declined by 1.1 percent of GDP) and an increase in spending (which rose by 0.9 percent of GDP).

Today's report also includes CBO's first preliminary estimate of operations thus far under the Troubled Asset Relief Program (TARP). In October, the government disbursed $115 billion under the TARP to purchase preferred stock in eight large banks. In CBOs view, the equity investment and associated warrants should be recorded on a net present value basis, accounting for market risk, as specified in the Emergency Economic Stabilization Act. CBOs preliminary estimate of $17 billion for the present value cost of the TARP equity injections is included in our estimate of $134 billion for the October deficit. CBO anticipates, however, that the Treasury will report the stock purchases on a cash basis; as a result, CBO estimates that the Treasury will report the October deficit at $232 billion (which is $98 billion, or $115 billion minus $17 billion, larger than the deficit using the net present value figures).