Yesterday CBO issued a very interesting report on the budgetary impact of the Federal Reserve's actions to address the economic and financial crisis.

The Congressional Budget Office (CBO) issued its Monthly Budget Review late last week. CBO reports that the federal government incurred a deficit of $800 billion for the first seven months of fiscal year 2010, about the same level as the deficit recorded for this same period last year. 

GM has been getting some prominent press coverage over the past few days, following their repayment of $4.7 billion to the Treasury on Tuesday. The company is claiming that it has repaid the government in full and years ahead of schedule, and has even begun running TV commercials with the CEO saying so. Well, yes, technically GM does not owe the government any more money, but this isn't the full story.

As of mid-day Friday, April 23, the yield curve looked steeper for the week (that is, interest rates rose on Treasury instruments at the longer end of the maturity spectrum). Market commentary was cited as the main driver, the response of investors to stronger than expected U.S. data suggesting that the recovery was taking hold. As the U.S. and global economies show signs of returning to some sort of normal, investor interest in U.S.

U.S. Treasury markets were relatively quiet most of this week, although some Friday morning news had translated into market gains, as of early afternoon. (Most notably mentioned, the SEC indictment of Goldman Sachs moved investors from stocks to bonds and lower consumer confidence in early April suggested a weak recovery in the near term.)

Commentators generally reported that demand was bolstered by safe haven effects related to continuing uncertainties with Greece’s sovereign debt challenges and possible concerns about other high debt Eurozone members. 

In testimony before the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke once again affirmed his membership in our Announcement Effect Club.  He argued that short-term deficits are necessary to bring the economy out of recession, but that the long-term imbalances are simply too large to ignore for much longer.  As he said:

In today’s hearing before the full House Appropriations Committee, the troika (OMB Director Peter Orszag, Treasury Secretary Geithner, and Dr. Christina Romer, Chair of the Council of Economic Advisors) faced tough questions for 3.5 hours on the fiscal commission, unemployment figures, and the deficit.

The Treasury Department recently released its annual Financial Report of the U.S. Government, reporting on the budget deficit, net operating costs, debt projections, and all government liabilities on an accrual accounting basis.

 An editorial yesterday in the Wall Street Journal called on the Administration to support the reform of the two housing financing enterprises originally sponsored and now owned by the federal government, Fannie Mae and Freddie Mac, and at a minimum, to show the full cost of those organizations in its budget.