US Spending On Interest Hits All Time High As Budget Deficit Soars To $684 Billion

The US’ spending problem will be starting to become a major issue.

According to the latest Monthly Treasury Statement, in June, the US collected $225BN in tax receipts – consisting of $110BN in individual income tax, $91BN in social security as well as payroll tax, $4BN in corporate tax as well as $20BN in various other taxes as well as duties- a drop of 2.9% via the $232BN collected last July as well as a reversal via the recent increasing trend…

… as well as in July, the 12 month trailing receipt total was barely higher compared to a year ago, up just 0.4% Y/Y after rising as much as 3.1% at the end of 2017.

Meanwhile Federal spending rose, up 9.9% via $275BN last July to $302BN last month.

… where the money was spent on social security ($83BN), defense ($49BN), Medicare ($24BN), Interest on Debt ($35BN), as well as various other ($111BN).

This specific resulted in a July budget deficit of $77 billion, in line with expectations, as well as a signification deterioration via the $43 billion recorded in July of 2017.

The July deficit brought the cumulative 2018F budget deficit to over $684BN during the first 10 month of the fiscal year, up 28% over the past year.

This specific will be the highest 12 month cumulative deficit since May 2013; as a reminder the deficit will be expect to improve further amid the tax as well as spending measures, as well as rise above $1 trillion as soon as next year.

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

although while out of control government spending will be clearly a concern, an even bigger problem will be what happens to not only the US debt, which recently hit $21.3 trillion, although to the interest on in which debt, in a time of rising interest rates.

As the following chart shows, US government Interest Payments are already rising rapidly, as well as just hit an all time high of $538 billion in Q2 2018. 

Interest costs are increasing due to three factors: an increase within the amount of outstanding debt, higher interest rates as well as higher inflation. Needless to say, all three are increasing; furthermore, a rise within the inflation rate boosts the upward adjustment to the principal of TIPS, increasing the amount of debt on which the Treasury pays interest, turbocharging the amount of interest expense.

The bigger question will be with short-term rates still just around 2%, what happens when they reach the mid-3% as the Fed’s dot plot suggests the idea will?

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Source : US Spending On Interest Hits All Time High As Budget Deficit Soars To $684 Billion