donderdag 12 juli 2018

US Budget Deficit Hits $607 Billion In 9 Months, As Spending On Interest Explodes

The US is starting to admit that it has a spending problem. According to the latest Monthly Treasury Statement, in June, the US collected $316BN in receipts, consisting of $162BN in individual income tax, $94BN in social security and payroll tax, $3BN in corporate tax and $22BN in other taxes and duties, a drop of 6.6% from the $338.7BN collected last June and a reversal from the recent increasing trend...


Even as Federal spending also dipped, down 8.8% from $428.9BN last June to $391.1BN last month...


Where the money was spent on social security ($88BN), defense ($65BN), Medicare ($79BN), Interest on Debt ($32BN), and Other ($126BN)...


This resulted in a June budget deficit of $75 billion, better than the consensus estimate of $98BN, and an improvement from the $147 billion deficit in May and as well as slightly less than the deficit of $90.2 billion recorded in June of 2017. This was the second biggest June budget deficit since the financial crisis...


The June deficit brought the cumulative 2018F budget deficit to over $607BN during the first nine month of the fiscal year, up 16% over the past year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion...


Most Wall Street firms forecast a deficit for fiscal 2018 of about $850 billion, at which point things get worse. As we showed In a recent report, CBO has also significantly raised its deficit projection over the 2018-2028 period...


But while out of control government spending is clearly a concern, an even bigger problem is what happens to not only the US debt, which recently surpassed $21 trillion, but to the interest on that debt, in a time of rising interest rates. As the following chart shows, US government Interest Payments are already rising rapidly, and just hit an all time high in Q1 2018...


Interest costs are increasing due to three factors: an increase in the amount of outstanding debt, higher interest rates and higher inflation. A rise in the inflation rate boosts the upward adjustment to the principal of TIPS, increasing the amount of debt on which the Treasury pays interest. For fiscal 2018 to-date, TIPS’ principal has been increased by boosted by $25.8 billion, an increase of 54.9% over the comparable period in 2017. The bigger question is with short-term rates still in the mid-1% range, what happens when they reach 3% as the Fed's dot plot suggests it will?
# Goldman notes that it expects that on its current financing schedule the Treasury still faces a financing gap of around $300bn in FY2019, rising to around $750bn by FY2021, and will thus need to raise auction sizes substantially over the next couple of years to accommodate higher deficits...