The Wrong Direction

clipped from bespokeinvest.typepad.com During the month of October, the Federal Government spent $2.30 for every dollar of revenue it took in.  Given the fact that this is the fifth time this year that the ratio has exceeded two, one might think that this type of deficit spending is commonplace.  However, going back to 1970, October was only the 13th month that the ratio ever exceeded two.  Prior to 2008, the ratio exceeded two an average of once every 6.5 years.  In the last two years, the ratio has exceeded two an average of once every three months! The charts below highlight the twelve month rolling totals of government revenues and outlays. It doesn’t take an accountant to see that these two lines are moving in the wrong direction.  Given the fact that nobody thinks Washington is going to reign in spending, the only way to solve the gap is through higher revenues (raising taxes) or increasing the money supply.  Is it any surprise that barely a day goes by where the dollar doesn't trade down in value?