October Surprise, 2008

Do you have any guesses as to what the “October Surprise” might be, just before the next presidential election? 

Well, I happen to have a guess.  See if you can figure it out from the following chart, just updated from yesterday’s Monthly Treasury Statement.  Click to enlarge: 

Before going further, let me emphasize something: I am not making a prediction.  I am merely stating a possibility that’s completely dependent on two big ifs.  Consequently, I will begin with those; then I’ll reveal the surprise that would result on October 12, 2008—twenty-three days before we elect our next president. 

“Big If” number one: 

If federal spending continues to increase at exactly the present rate...

“Big If” number two:

If federal tax receipts continue to increase at exactly the present rate...

Then:

On October 12, 2008, annual spending would become exactly equal to annual tax receipts.  In other words, the federal budget would move into balance, three weeks before election day. 

How would I feel about that?  From a technical standpoint, I’d be a bit disappointed, because I prefer a steady annual deficit of between 2% and 3% of GDP.  That is the (unified budget) deficit required to hold the (total) debt-to-GDP ratio constant when the economy is growing at around 7% (nominal).  So, from a technical standpoint, I’d rather not see a balanced budget.  It overshoots the mark.

However, I really do enjoy a good laugh, I’m not kidding; so I’d gladly set aside my mild technical disappointment just for a chance to watch the doom peddlers try to talk their way out of the hole they’ve dug themselves.  Wouldn’t you love to watch them stutter like Porky Pig for a few weeks in front of a national audience of a hundred million voters or so?  Or is it just me?   

A lot of the wanna-be-presidents (on one side, anyway) have spent years betting their political capital on fear-peddling: scaring us about deficits enough so that we'll vote them into office to “fix” it for us.  But today I can picture beads of perspiration breaking out on their foreheads, because the growing economy is just about to nail the coffin shut on all that doomsday talk.  Will October 12, 2008 be the day of the last nail in that coffin? 

It’s way too early to tell... but then again, why not be optimistic about it?  Politics has been trumping economics ever since I’ve been paying attention; I’d like to see that situation reverse itself, just once.