It is the final month of this organization’s fiscal year. In just 24 days, they will have to wrap up their annual reports. As this is a very significant organization, its bookkeepers and accountants over in the Treasury Department have been working diligently to produce the most accurate and up-to-date reports on the latest financial position of the organization.
But as is the case most years, upper management continues to squabble over spending those last few dollars of income and, most importantly, how to budget for next year. The fact that management’s arguments have broken out in the open and are now publicized by most news bureaus makes things more difficult.
If this organization had stock, no one would buy it; investors are looking for well-run companies where management has a shared vision of its goals and objectives. Even in rough times, management for most organizations speaks with one voice and understands that public bickering only makes things worse.
Looking back at some of the nation’s largest bankruptcies, a time when managements were under extreme pressure, I don’t recall any executive squabbling. From Lehman Brothers to Washington Mutual, and more recently, Silicon Valley or Signature Banks, each saw their managers work together to salvage their situation. Tragically, management could not save the day in each of those cases.
Thankfully, those financial failures remain few and far between. And it’s not because American corporations have few concerns. Just the opposite, most of the major corporations in this country must face repeated issues, not the least of which is the changing financial background.
During the last year and a half, corporations have seen their cost of capital dramatically rise in what has been a revolutionary change in their ability to obtain financing. While the stock market remains elevated, which helps those few companies that can sell stock, most capital is raised through debt financing, short-term loans, long-term bonds, etc. And for companies reliant on debt, the cost of funding has risen astronomically.
However, we rarely hear any complaints from corporate executives. There is an underlying code of behavior that says essentially, “Don’t complain. You’re supposed to succeed no matter the cost.” And almost always, they do succeed. The company prevails because good managers persevere quietly.
Unfortunately, it is a lesson that our nation’s “managers” have yet to learn. As you’ve no doubt guessed, the organization we’re referring to is our Government and its budget process. September is the final month in the Federal Fiscal Year and the time when a budget must be prepared and approved for next year.
You can bet that the support staff at the Treasury, the Congressional Budget Office, and all the rest have already done their job. The reports on next year’s Budget are already sitting on the Representative’s desks as they have been for months. Have those reports been looked at? Doubtful. It’s most likely that the entire document will never be reviewed. Instead, individual Representatives will likely review any particular provision that affects them and their voters but will only review a part of the Budget Bill. Thus, the big numbers, like the overall deficit, can grow and grow as long as the member’s constituents are “happy.”
This year, Speaker McCarthy has elected a novel approach to the budget process; ignore it. In 1980, the House of Representatives decided to get serious about the Budgetary Process. That year, the House mandated that the Next Year’s Budget be passed before the next fiscal year began (October 1 of any given year). It was a way to force the members of Congress to deal with the entire Budget, not just their pet projects. Unless there were an agreement on the Budget, the Government would be “shut down.” In the intervening 43 years, Congress has failed to reach a Budget Agreement 22 times, with 10 of those impasses resulting in Government services coming to a halt.
These Government shutdowns added a level of seriousness to a process badly in need of some control. The shutdowns are front-page news across the country. The entire nation focuses on those Congressional Leaders who are responsible. The heat becomes intense. It is just the sort of thing that politicians in the House and Senate try to avoid.
And that’s just what McCarthy is doing this year: avoid responsibility. There will be no shutdown this year. Instead, McCarthy will utilize the “Continuing Resolution Gambit” to avoid halting government services. Even though this will be one of the most enormous budgets in history and add to the already escalating deficit, Congress will step out of the spotlight and pretend it’s not happening.
Federal Tax Receipts (green), Federal Expenditures (red). Note how receipts have begun to turn down, a sign of a weak economy.
Each quarter, the US Treasury publishes its latest projection for financing needs. Twice in history, those needs reached a trillion dollars during the Pandemic of 2020 and 2021. We’re right back there again. In this quarter, Q3, 2023, it is projected that we will need to borrow a trillion dollars again. It is an unheard-of sum indicating how out of control this budget process is.
We’ll hear about the “heated” budget process for the next three weeks. A process in which the financial managers of this country cannot agree on such a fundamental economic function as “spending.” It is just the sort of thing that makes one lose confidence in the organization. If the US “Corporation” were a publicly traded stock, many investors would be going “short” right about now.