2011   Financial Report of the United States Government

Management's Discussion & Analysis

Economic Recovery Efforts

This section provides an overview of the economy at the end of FY 2011 and discusses the many important recovery efforts that have been initiated by the Department of the Treasury and across the Government.

The Economy in Fiscal Year 2011

Table 6: National Economic Indicators*
  FY 2011 FY 2010
Real GDP Growth 1.5% 3.5%
Residential Investment Growth 1.4% -7.8%
Average monthly payroll job change (thousands) 158 29
Unemployment rate (percent, end of period) 9.1% 9.6%
Consumer Price Index (CPI) 3.9% 1.1%
CPI, excluding food and energy 2.0% 0.8%
Treasury constant maturity 10-year rate (end of period) 1.9% 2.5%
Moody's Baa bond rate (end of period). 5.2% 5.6%
*Some FY2010 data may differ from the FY2010 Report due to up date and revision.

 A review of the Nation’s key macroeconomic indicators can help place the discussion of the Government’s financial results in a broader context.  As summarized in Table 6, the economy continued to grow, albeit at a slower rate during FY 2011.  Job growth accelerated, with private non-farm payrolls rising by almost 1.9 million after a gain of nearly 350,000 the previous fiscal year.  The unemployment rate declined during FY 2011 but remained relatively high.

After rising by 3.5 percent during FY 2010, real GDP grew at an annual average rate of 1.5 percent over the four quarters of FY 2011.  Quarterly performance was mixed, with real GDP rising 2.3 percent during the first quarter of FY 2011, 0.8 percent on average in the second and third quarters, and 2.0 percent in the fourth quarter of the fiscal year.  The economy added 1.6 million total nonfarm payroll jobs during FY 2011, a substantial improvement on the 118,000 nonfarm payroll jobs added during FY 2010.  In the private sector, nonfarm payrolls rose by about 1.9 million, after increasing by nearly 350,000 during the previous fiscal year.  Nonetheless, the unemployment rate remained elevated in the aftermath of the financial crisis during FY 2011, declining from 9.6 percent in September 2010 to 9.1 percent in September 2011.  Inflation increased for the second straight year, mainly reflecting increases in energy and food prices, but still remained contained.  Underlying inflation (the core rate, excluding food and energy) also increased but was still low by historical standards.  Real wages declined, reflecting the combination of slower nominal wage growth and rising consumer prices. The level of corporate profits increased in FY 2011, but at a slower pace than in the previous fiscal year.  Growth of Federal spending and receipts accelerated in FY 2011.  As a result, the Federal unified budget deficit was little-changed at $1.3 trillion but narrowed as a share of GDP to 8.7 percent of GDP from 9.0 percent in FY 2010.

The following key points summarize economic performance in FY 2011: 

Review of the Government’s Stabilization Efforts

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        Three years ago, the U.S. financial system was on the verge of collapse and many major financial institutions were at risk of failure.  Markets had ceased to function.  Without immediate and forceful government action, our country faced the possibility of a second Great Depression.  The Department of the Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and other U.S. Government bodies undertook an array of unprecedented steps at that time to avert a potential collapse and continue to administer a number of programs to help pave the way for sustained economic recovery.  Three years later, substantial progress continues to be made in stabilizing the financial system as the Government continues to wind down the extraordinary assistance that was provided during the crisis.  Chart H summarizes the outstanding balances of investments and direct loans related to key economic recovery programs.


The Housing and Economic Recovery Act of 2008 (HERA) established a new regulatory agency, the Federal Housing Finance Agency (FHFA), to regulate the housing Government-Sponsored Enterprises (GSEs),18 Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.  FHFA placed Fannie Mae and Freddie Mac under conservatorship in September 2008 in order to preserve GSE assets and restore those GSEs to a sound and solvent financial condition.  Pursuant to HERA, the Treasury Department undertook certain efforts to help ensure the solvency and liquidity of the GSEs, including:

The SPSPAs are intended to maintain the solvency of the GSEs so they can continue to fulfill their vital roles in the mortgage market while the Administration and Congress determine what structural changes should be made.  These agreements provide that the Government will make funding advances to the GSEs if, at the end of any quarter, the FHFA, acting as the conservator, determines that the liabilities of either GSE exceeds its respective assets.  GSE funding is subject to a formulaic cap that adjusts upwards quarterly by the cumulative amount of any losses realized by either GSE and downward by the cumulative amount of any gains, but not below $200 billion per GSE, and will become fixed on December 31, 2012.  At that time, the remaining commitment will then be fixed and available to be drawn per the terms of the agreements.  As of September 30, 2011, Treasury had made total actual cumulative combined payments to Fannie Mae and Freddie Mac of $169.0 billion, reflected on the Government’s balance sheet at fair value of $133.0 billion (see Chart H).  In addition, a combined $316.2 billion has been accrued as a contingent liability for future SPSPA investments in the GSEs, a $44 billion decrease from FY 2010, following a $268 billion increase between 2009 and 2010.  The significant increase in this liability in FY 2010 was due primarily to the increased availability of GSE projection data, coupled with the effect of the 2009 amendment to the liquidity cap for each GSE.  The decrease in FY 2011 was attributable to payments to the GSEs and updated projections reflecting lower expected future losses at the GSEs.

The GSE Mortgage-Backed Securities (MBS) Purchase Program was created to broaden access to mortgage funding for current and prospective homeowners and to promote stability in the mortgage market.  Between October 2008 and December 31, 2009, Treasury purchased $225 billion in agency MBS.  In March 2011, Treasury announced its plans to sell up to $10 billion of its MBS portfolio per month, subject to market conditions.  As a result of these sales and prepayments, the outstanding MBS portfolio decreased by more than half from $172.2 billion at the end of FY 2010 to $72.4 billion at the end of FY 2011 (see Chart H) and by more than two-thirds when compared to Treasury’s initial purchases.   Treasury’s efforts combined with purchases by the Federal Reserve, has helped bring down mortgage rates to historically low levels and provide liquidity and stability to housing markets.

EESA, TARP, and the Office of Financial Stability   

The Emergency Economic Stabilization Act of 2008 (EESA) provided authority and facilities that the Secretary of the Treasury could use to restore liquidity and stability to the financial system of the United States and ensured that such authority and facilities have been used in a manner that protected home values, college funds, retirement accounts, and life savings; preserved home ownership; promoted jobs and economic growth; maximized overall returns to the taxpayers of the United States; and provided public accountability for the exercise of such authority.  The EESA authorized the establishment of the Office of Financial Stability (OFS) within the Treasury Department to implement the Troubled Asset Relief Program (TARP).  TARP, in conjunction with other Federal Government actions, helped to prevent a collapse of the financial system and unfreeze capital and credit markets, bringing down the cost of borrowing for businesses, individuals, and state and local governments, restoring confidence in the financial system, and restarting economic growth.  TARP did so faster and at a much lower cost than many anticipated.

The EESA originally provided authority for the TARP to purchase or guarantee up to $700 billion in troubled assets.  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 reduced the cumulative TARP authority to $475 billion.  On October 3, 2010, OFS’ authority to make new commitments under TARP expired.  During FY 2011, OFS focused principally on exiting remaining investments in a timely and orderly manner, maximizing return for taxpayers, and continuing to help homeowners avoid preventable foreclosures:

As a result of improved financial conditions of TARP participants, earlier than expected asset repurchases, lower utilization of the program, and careful stewardship, the estimated cost of TARP over its lifetime continues to decline on a budget basis, from $341 billion in August 2009 (assuming the full $700 billion of TARP authority was utilized), to $117 billion in February 2010 (assuming $546 billion of the $700 billion TARP authority was utilized).  The most recent estimates as of September 30, 2011, reflect a lifetime cost of $70.2 billion on $470 billion of TARP authority that was obligated.  These budget-basis estimates, which assume that all planned expenditures are made, differ from the cost reported in the financial statements, which are based on transactions through September 30, 2011, and thus, do not include committed but undisbursed funds for housing programs as well as other programs all  of which are included in the expected lifetime cost for budget purposes.  TARP’s costs from inception (October 3, 2008), through September 30, 2011, as reported in the OFS financial statements, were $28.0 billion.

Since its inception through September 30, 2011, OFS has disbursed $413.4 billion in direct loans and investments and for the Treasury Housing programs under TARP, collected $276.9 billion from repayments and sales, and reported nearly $40 billion from cash received through interest and dividends, as well as from proceeds from the sale and repurchase of assets in excess of cost.  As of September 30, 2011, TARP had $122.4 billion in gross outstanding direct loans and equity investments, valued at $80.1 billion (see Chart H).

It should be noted that TARP cost estimates are based on current market prices, where available.  The ultimate cost of the outstanding TARP investments is, therefore, subject to significant uncertainty and will depend on, among other things, how the economy, financial markets, and particular companies perform.  Additional information concerning the TARP program and other related initiatives can be found at www.financialstability.gov.

The Recovery Act

Improvement in the economic and financial outlook since the spring of 2009 reflects a broad and aggressive policy response that has included the initiatives and programs under HERA and TARP as discussed above, other financial stability policies implemented by the FDIC and the Board of Governors of the Federal Reserve, accommodative monetary policy, and the American Recovery and Reinvestment Act of 2009 (ARRA or the Recovery Act).  The purpose of the original $787 billion ARRA package was to jump-start the economy and to create and save jobs, with one-third of ARRA dedicated to tax provisions to help businesses and working families,   another third for emergency relief for those who have borne the brunt of the recession, and the final third devoted to investments to create jobs, spur economic activity, and lay the foundation for future sustained growth.  Cumulative ARRA amounts paid out by Federal agencies as of September 30, 2011 totaled $421.4 billion, as compared to $307.9 billion as of September 30, 2010.19  It is important to note that amounts spent by the Federal, State, and Local government agencies, as well as by the private sector are constantly changing.  Readers may find the most up-to-date information on where and how these funds are being used at www.recovery.gov.


18 The housing GSEs (Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System) are chartered by the Federal Government and pursue a federally mandated mission to support housing finance. Some GSEs are distinctly established as corporate entities - owned by shareholders.  The obligations of the housing GSEs are not guaranteed by the Federal Government, however, Treasury's actions under HERA provided significant financial support to Fannie Mae and Freddie Mac. (Back to Content)

19 Agency Financial & Activity Reports as of September 30, 2011 and 2010.  For more information, see the Recovery Act website at www.Recovery.gov. (Back to Content)

Last Updated:  February 16, 2012