US Spending On Interest Hits All Time High As Budget Deficit In Trump's First Year Soars To $779 Bln

[TaiShang]

One month ago we already knew that the U.S. budget deficit for the 2018 fiscal year - Trump's first full year in office - would be jarring after the August deficit soared to $211 billion, nearly double the deficit gap from one year ago (largely due to calendar quirks) which on a cumulative basis for the first 11 months of the fiscal year was a staggering $895 billion, $222 billion or 39% more than the previous year. This was largely due to outlays which climbed 7% while revenue rose a mere 1%.

Today at 2pm we got official confirmation of the rapid expansion in the US budget deficit when the Treasury announced that in Trumps first full fiscal year as president, the U.S. budget deficit grew 17% to $779 billion from $666 billion...

... the highest full year total since 2012 amid tax cuts and spending increases, if below the trailing 12 month total as of August which, as noted above, was a whopping $895 billion.

The budget gap for the 12 month period ended September was 17% greater than the same 12-month period a year earlier, as spending rose 3.2% and revenue gained just 0.4%.

The deficit as a share of GDP was 3.9% in fiscal 2018, up 0.4% point from the prior year.

To fund this deficit, the U.S. government borrowed $1.08 trillion from the public in Fiscal 2018, more than double the amount borrowed in 2017 ($498.3 billion) and the most borrowed from the public in a fiscal year since FY'12.

There was some good news: contrary to more pessimistic expectations, the surplus for the fiscal year's final month of September jumped to $119 billion, the largest windfall for the last month of any fiscal year on record. However, like in August, there were calendar effects in play - and if not for timing shifts, last month's surplus would have been just $44BN, $7BN (13%) less than Sep '17 surplus.

In actual terms, the surplus was the result of a sharp drop in Federal Outlays from $433.3BN in August to $224.4BN in September, down from $340.8BN a year prior. This was the lowest one month spending total since June 2013.

At the same time receipts jumped from $219.1BN in August to $343.6BN in September, fractionally lower than the $348.7BN collected a year prior.

But the most troubling observation in the latest data was that the government paid $523 billion in total interest in fiscal 2018, the highest on record.

But wait, there's more, because as we warned last month, these numbers are set to deteriorate rapidly: according to the Congressional Budget Office, the government deficit will hit $973 billion in fiscal 2019 and rise above $1 trillion the next year. That would be the first time the deficit exceeds $1 trillion since 2012, when the American economy was still recovering from the Great Recession.

A key culprit for receipts not keeping up with spending are Republican tax cuts, while increased federal spending and an aging population have also contributed to the fiscal strains, though the GOP says tax reform enacted this year will spur economic growth and lift government revenue. Meanwhile, corporate income-tax receipts fell 31% in fiscal 2018 while individual income taxes gained 6.1%.

"America’s booming economy will create increased government revenues - an important step toward long-term fiscal sustainability,” Trump’s budget director, Mick Mulvaney, said in a statement accompanying the Treasury report. “But this fiscal picture is a blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending."

And more bad news: in order to finance the soaring budget gap, the US Treasury will aggressively increase the pace of debt issuance, borrowing $769 billion in the second half of the current calendar year. That would be the most since 2008. The full year number for 2019 is expected to be well over $1 trillion, and has been cited by some as the reason behind the recent blow out in interest rates.

Cited by Bloomberg, Trump’s top economist, Kevin Hassett, said this month the president will unveil measures soon to address the shortfall, although he did not provide specifics.

"The deficit is absolutely higher than anyone would like,” Hassett said. And, looking ahead, it's set to keep rising indefinitely until finally something breaks.

https://www.zerohedge.com/news/2018...gh-budget-deficit-trumps-first-year-soars-779

***

This is how you win trade war: By borrowing more, and paying higher interests.

@Raphael , @Chinese-Dragon , @TANAHH , @AndrewJin , @powastick , @long_ , @dy1022

 

[Chinese-Dragon]

One month ago we already knew that the U.S. budget deficit for the 2018 fiscal year - Trump's first full year in office - would be jarring after the August deficit soared to $211 billion, nearly double the deficit gap from one year ago (largely due to calendar quirks) which on a cumulative basis for the first 11 months of the fiscal year was a staggering $895 billion, $222 billion or 39% more than the previous year. This was largely due to outlays which climbed 7% while revenue rose a mere 1%.

Hmm, and so many people seem to think that those Trumpian policies of trillions in tax cuts and massive new spending plans (not to mention the trade war against the entire world), they all come for free right? Or do they come from the Government Budget (government revenue vs government spending), which already has the worst deficit in the world by far?

On the other hand, most people think about the Current Account in terms of Exports/Imports/Overseas Investment Income. But the Current Account is also defined as Savings minus Investment (by rearranging the formula). When a country does not have enough Savings to cover Investment, that must come from overseas, so they have a Current Account deficit, i.e. they become net borrowers.

When it comes to democracies, usually they want "fast results" to show their voter base that they are worthy of re-election, this usually involves boosting Spending which is often the major component of their GDP growth. However, increasing spending by definition reduces Savings, thus widening the Current Account deficit, which must be financed by borrowing from abroad, investment from abroad, or selling domestic assets to overseas buyers. None of which are sustainable in the long term, hence the economic consensus that a Current Account deficit cannot be sustained forever.

Short-termism basically "passes the buck" down to future generations, who will have to pay for it in the long-term. But that's how CEO's (and recently American Presidents) operate, they need to show quarterly profits as a matter of both ego and survival. Whatever comes in the long-term, say 10-20 years later... that's a problem for someone else.

 

[TaiShang]

Hmm, and so many people seem to think that those Trumpian policies of trillions in tax cuts and massive new spending plans (not to mention the trade war against the entire world), they all come for free right? Or do they come from the Government Budget (government revenue vs government spending), which already has the worst deficit in the world by far?

On the other hand, most people think about the Current Account in terms of Exports/Imports/Overseas Investment Income. But the Current Account is also defined as Savings minus Investment (by rearranging the formula). When a country does not have enough Savings to cover Investment, that must come from overseas, so they have a Current Account deficit, i.e. they become net borrowers.

When it comes to democracies, usually they want "fast results" to show their voter base that they are worthy of re-election, this usually involves boosting Spending which is often the major component of their GDP growth. However, increasing spending by definition reduces Savings, thus widening the Current Account deficit, which must be financed by borrowing from abroad, investment from abroad, or selling domestic assets to overseas buyers. None of which are sustainable in the long term, hence the economic consensus that a Current Account deficit cannot be sustained forever.

Short-termism basically "passes the buck" down to future generations, who will have to pay for it in the long-term. But that's how CEO's (and recently American Presidents) operate, they need to show quarterly profits as a matter of both ego and survival. Whatever comes in the long-term, say 10-20 years later... that's a problem for someone else.

Hmm, and so many people seem to think that those Trumpian policies of trillions in tax cuts and massive new spending plans (not to mention the trade war against the entire world), they all come for free right? Or do they come from the Government Budget (government revenue vs government spending), which already has the worst deficit in the world by far?

On the other hand, most people think about the Current Account in terms of Exports/Imports/Overseas Investment Income. But the Current Account is also defined as Savings minus Investment (by rearranging the formula). When a country does not have enough Savings to cover Investment, that must come from overseas, so they have a Current Account deficit, i.e. they become net borrowers.

When it comes to democracies, usually they want "fast results" to show their voter base that they are worthy of re-election, this usually involves boosting Spending which is often the major component of their GDP growth. However, increasing spending by definition reduces Savings, thus widening the Current Account deficit, which must be financed by borrowing from abroad, investment from abroad, or selling domestic assets to overseas buyers. None of which are sustainable in the long term, hence the economic consensus that a Current Account deficit cannot be sustained forever.

Short-termism basically "passes the buck" down to future generations, who will have to pay for it in the long-term. But that's how CEO's (and recently American Presidents) operate, they need to show quarterly profits as a matter of both ego and survival. Whatever comes in the long-term, say 10-20 years later... that's a problem for someone else.

Basically, it is a political problem and has little to do with China, Japan or Germany.

They perhaps need a complete overhaul of the way they structure their domestic, and by extension, foreign policies, so that a more sustainable internal and external life-style can be established.

But, the way the US internal and external politics is designed, it is near impossible for such deep reformation. Their entire power relations have been controlled by strong industrial-financial-militarist actors which care very little about nation, or, (judging by the problems they bring upon other people) any other nation.

I think, without putting their domestic and foreign policy choices in order, no economic warfare will help them in the long run.

 

[powastick]

Instead of fixing their irresponsible spending, they are blaming other countries of ripping them off.

 

[Chinese-Dragon]

Basically, it is a political problem and has little to do with China, Japan or Germany.

They perhaps need a complete overhaul of the way they structure their domestic, and by extension, foreign policies, so that a more sustainable internal and external life-style can be established.

But, the way the US internal and external politics is designed, it is near impossible for such deep reformation. Their entire power relations have been controlled by strong industrial-financial-militarist actors which care very little about nation, or, (judging by the problems they bring upon other people) any other nation.

I think, without putting their domestic and foreign policy choices in order, no economic warfare will help them in the long run.

Well imagine yourself as the American President, or a CEO of an American company (basically the same thing nowadays)... how do you explain to your shareholders (or your voter base) that they have to wait for 10 years to see positive results from your policy decisions? (For things like hydroelectric dams it might be even longer than that.)

No, they want results NOW. What if your quarterly profits drop? Too bad, they will find someone else to replace you.

Short-termism is dangerous for exactly this reason, shareholders and voters don't care about long-term results, and even if they did, it wouldn't matter since you wouldn't be there 10 years later to reap the benefits anyway. It will be someone else's problem.

 

[AndrewJin]

Well imagine yourself as the American President, or a CEO of an American company (basically the same thing nowadays)... how do you explain to your shareholders (or your voter base) that they have to wait for 10 years to see positive results from your policy decisions? (For things like hydroelectric dams it might be even longer than that.)

No, they want results NOW. What if your quarterly profits drop? Too bad, they will find someone else to replace you.

Short-termism is dangerous for exactly this reason, shareholders and voters don't care about long-term results, and even if they did, it wouldn't matter since you wouldn't be there 10 years later to reap the benefits anyway. It will be someone else's problem.

Western style democracy is all about short-term interests.
There you go, now US has the Sub-Sahra-Africa style infrastructure and slums.

 

[TaiShang]

Well imagine yourself as the American President, or a CEO of an American company (basically the same thing nowadays)... how do you explain to your shareholders (or your voter base) that they have to wait for 10 years to see positive results from your policy decisions? (For things like hydroelectric dams it might be even longer than that.)

No, they want results NOW. What if your quarterly profits drop? Too bad, they will find someone else to replace you.

Short-termism is dangerous for exactly this reason, shareholders and voters don't care about long-term results, and even if they did, it wouldn't matter since you wouldn't be there 10 years later to reap the benefits anyway. It will be someone else's problem.

I think it is impossible to insert some long-vision into populist indirect democracy in the US.

With the general decline in the quality of policy-makers, even populist idealism is a hard find. In such an environment, everyone becomes short-termed: From students on loan to household.

They, instead of reflecting their own conditions upon others and seeking blame-targets, better put their house in order. Trump probably dreamed of it, imagining a leaner US with lots of minority baggages are cast, but, it is too late to rectify.

 

[TaiShang]

US government posts widest deficit since 2012

CGTN
2018-10-16

The US government closed the 2018 fiscal year 779 billion US dollars in the red, its highest deficit in six years, as Republican-led tax cuts pinched revenues and expenses rose on a growing national debt, according to data released on Monday by the Treasury Department.


New government spending also expanded the federal deficit for the 12 months through September, the first full annual budget on the watch of US President Donald Trump. It was the largest deficit since 2012.

The data also showed a 119 billion dollars budget surplus in September, which was larger than expected and a record for the month. A senior Treasury official said the monthly surplus was smaller when adjusted for calendar shifts.

Economists generally view the corporate and individual tax cuts passed by the Republican-controlled US Congress late last year and an increase in government spending agreed in early February as likely to balloon the nation's deficit.

Trump and his fellow Republicans have touted the tax cuts as a boost to growth and jobs.

“America's booming economy will create increased government revenues – an important step toward long-term fiscal sustainability,” Office of Management and Budget Director Mick Mulvaney said in a statement accompanying the data.

The deficit in the 12 months through September was 113 billion dollars- or 17 percent - bigger than in the same period a year earlier. Adjusting for calendar effects, the gap was even larger, the Treasury official said.

The Bipartisan Policy Center called the report “a wake up call” for policymakers to turn things around. “The fact that our government is closing in on trillion-dollar deficits in the midst of an economic expansion should be a serious issue for voters and candidates,” William Hoagland, its senior vice president, said of next month's US congressional elections.

Much of the widening of the deficit came from more spending on interest payments on the national debt. Borrowing has increased over the past year, partially to make up for slower growth in tax revenues because of the tax cuts, while military spending has also risen.

Adding debt servicing costs, the US Federal Reserve is raising interest rates roughly once per quarter in the face of a hot labor market and some signs of inflation. Some Fed officials have warned that rising US deficits could hamper any US fiscal response to a downturn.

Trump has in turn criticized the Fed's monetary tightening, saying last week that the central bank had “gone crazy.”

https://news.cgtn.com/news/3d3d514e3267444f7a457a6333566d54/share_p.html