When Will $1 Trillion Deficits Start to Matter?

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With another round of Presidential candidate debates on the docket, it’s time to talk about deficits. Realistically, it seems no one in Washington, D.C. has any great plans about how to deal with spending deficits. It also seems that no one in Washington, D.C. really even cares about deficits.

Data from the Treasury show that the fiscal year 2019 has already surpassed $1 trillion. After a $200 trillion gain in August, the deficit is already shown to be up about $300 billion from all of 2018.

The latest budget figures show that the Treasury collected some $228 billion in revenues versus expenses of $428 billion during August. So far this year, government spending has been up 7% to $4.1 trillion while tax receipts have risen 3% to $3.1 trillion.

Spending on debt servicing (interest cost) and defense were both up 9%, and spending on Medicare was up 10%. Spending on Social Security and Medicare also expected to keep rising in the years ahead as waves and waves of Baby Boomers will be retiring and living longer than prior generations.

As of August 31, 2019 the average interest rate paid by the Treasury on debt was 2.463% for its marketable securities. That average interest rate has been rising in recent years now that the U.S. is no longer at a near-zero interest rate policy. The average yield on marketable securities at the end of August was 2.337% in 2018, 2.084% in 2017, and 1.999% in 2016.

As a reminder, the federal fiscal year has only one more month. The $4.16 trillion that has been spent so far in 2019 is already above the $4.11 trillion spent for all of fiscal year 2018.

While $1 trillion deficits are never easy to justify as good or acceptable, nor should they be, some Septembers are good months in tax receipts versus spending and that means that the U.S. deficit might not be over the $1 trillion market by the time the year-end is hit. There were four other years where the U.S. deficit was over $1 trillion, but the years of 2013 to 2018 were considerably lower. Those four years were shown as follows:

  • 2009 ($1.41T)
  • 2010 ($1.29T)
  • 2011 ($1.30T)
  • 2012 ($1.09T)

Former Vice President Dick Cheney was once quoted as saying “Reagan proved that deficits don’t matter.” With endless deficits from the United States, Europe and Japan under the auspices of quantitative easing and endless spending, the world is still willing to fund endless deficit spending.

Perhaps a modernized quote of ‘deficits don’t matter’ will one day read:

“Deficits don’t matter, until they do. And then it hits the fan.”

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