Written by Mike Mahary
After posting the third-largest budget deficit on record in fiscal year 2024, the Biden administration started fiscal year 2025 in a similar manner.
The federal government $257.45 The latest statement from the Ministry of Finance says the budget shortfall for the start of the new financial year has resulted in lower revenues and higher expenditures.
This is a 287% increase compared to the deficit in October 2023.
Federal government revenue was $326.77 billion. This is a decrease of approximately 19% compared to October 2023. A temporary influx of taxes deferred due to last year's wildfires boosted revenues in October 2023.
The big problem, as has been the case for the past few months, is on the expense side of the book.
The Biden administration was a huge success. $584.22 billion last month. This was a 24% increase over the previous year. Spending on Social Security, Medicare, and defense all increased.
You may remember that President Biden promised: [pretend] With spending cuts, debt ceiling agreements (also known as [misnamed] Fiscal Responsibility Act).
That never happened.
The federal government continues to find new reasons to spend money, such as natural disasters at home and wars overseas. The Biden administration will spend a staggering $6.75 trillion in fiscal year 2024, a 10 percent increase over 2023 spending.
The federal government spent $82 billion in interest expenses last month. This is a modest 8% decline and the first annual decline in interest expense since August 2023. The Treasury Department said the decline was due to a $12 billion decrease in payments on inflation-indexed securities due to lower CPI.
Net interest expense was $80 billion. This is an increase of $4 billion compared to October 2023.
uncle sam paid $1.13 trillion This is the first time that interest expense has exceeded $1 trillion.
Interest expense increased by 28.6% compared to the 2023 level.
Don't be fooled by the slight decrease in interest paid last month. The overall trend remains upward. Despite the Federal Reserve's recent interest rate cuts, Treasury yields are rising as demand for U.S. Treasuries remains weak. The 10-year Treasury yield has risen 15 basis points since President Trump's election victory.
Much of the debt currently on the books was financed at very low interest rates before the Federal Reserve began its rate hike cycle. Every month, a piece of ultra-low-yielding paper matures and must be replaced with bonds that yield much higher interest rates.
Effects of debt
We see these huge deficits every month, and most people don't turn a blind eye. There seems to be a sense that spending more than your income each month is not really a problem.
But those who say “deficits don't matter” are deceived.
As the Bipartisan Policy Center points out, rising national debt and increasing fiscal irresponsibility are hurting the dollar.
“Confidence in the creditworthiness of the United States may be undermined by a rapid deterioration in fiscal conditions, and there is growing concern that the federal debt will increase significantly in the coming years.”
This could lead to lower economic growth, higher unemployment rates, and fewer invested assets.
A lack of confidence in the U.S. fiscal situation could also reduce demand for U.S. Treasuries. This would force interest rates on U.S. Treasuries to rise further to attract investors, further exacerbating the interest payment problem.
The national debt continues to increase at a dizzying pace. Within days, it will officially surpass $36 trillion. According to the National Debt Clock, this is equivalent to 122.85 percent of GDP. Research shows that a debt-to-GDP ratio of over 90 percent slows economic growth by about 30 percent.
Debt is likely to be one of the biggest issues President Trump faces when he assumes power. With Republicans controlling both chambers of Congress and the White House, there is an opportunity to address spending issues, but it remains to be seen whether Republicans have the political will to make significant cuts.
