The July budget deficit was $ 302.05 billion. This figure was surpassed only by the figures for February ($ 310 billion) and March ($ 600 billion).
There are 2 months left before the end of the fiscal year, and according to the latest Treasury report, the deficit for the year is $ 2.54 trillion.
Amounts going to the US Treasury fell sharply in July as the tax season drew to a close. Government revenues last month totaled $ 262.0 billion against $ 449.20 billion in June.
But Uncle Sam continues to spend money at an unimaginable rate. Government spending in July amounted to $ 564.05 billion.
The US government spent more than half a million dollars every month except for two (November and December). So far, total spending in 2021 has gone $ 5.86 trillion. Over the past 12 months, expenses have exceeded expenses for the period ending July 2019 by 55%.
Even without additional incentives, spending doesn’t seem to slow down much in the coming year. Congress is gearing up to pass a $ 1.2 trillion infrastructure bill, and Biden’s 2022 budget exceeds $ 3.5 trillion. Such a budget would lead the United States to the highest sustainable spending level since World War II.
As with any budget proposal, the reality is likely to be worse than forecasted. The government will almost certainly spend more than planned and tax revenue will fall short of expectations. This means that an even larger deficit will join the ever-growing public debt.
As of July 12, the national debt was $ 28.43 trillion. The debt is currently frozen at this level, but the suspension of the 2-year debt ceiling will end on July 31st. Congress is determined to tackle the debt ceiling, as a result of which the federal borrowing limit will be raised again. The government can hush up the topic with a ceiling, temporarily applying “emergency measures”. The Congressional Budget Office predicts that Uncle Sam’s money will run out this fall, probably in October or November.
According to the National Debt Clock, the ratio of debt to gross domestic product is 125.61%. And while many are oblivious to it, debt has consequences. An increase in government debt means a slowdown in economic growth. According to research results, the ratio of public debt to gross domestic product over 90% slows down economic growth by about 30%. This disproves the idea of ”spend now, think about debt later”, along with the popular claim today that “we can grow out of debt.”
The growing deficit can be easily attributed to spending related to the pandemic, but, as mentioned, there are no signs that spending is about to slow down. This undermines any Fed plans to tighten monetary policy to combat inflationary pressures. As new federal spending approaches, the economy will need more monetary stimulus than ever, Peter Schiff pointed out.
How else will these fiscal incentives be paid? Where will the Treasury get the money for the $ 1.2 trillion infrastructure package? Where can we get the even bigger $ 3.5 trillion spending money that should follow? The answer lies in the Fed. While everyone is selling gold because they expect the Fed to cut back on asset purchases, the real threat is that the Fed will increase asset purchases.
The huge budget deficit will almost certainly persist for the foreseeable future. This means the government needs more borrowing, and the central bank will continue to keep its finger on the pulse of the bond market through asset purchases to make this possible. This means that there will be no tightening of the policy. Even if the Fed cuts back on purchases first, they are likely to rise again in the end. This is the only way to cover the huge deficit. The bottom line is that larger deficits lead to higher inflation.
Moreover, given the debt, the US economy will not be able to handle the high interest rates needed to curb price increases. The Federal Reserve raised interest rates slightly to 2.5% in 2018, and all hell began. The stock market crashed and the Fed was forced to return to easing monetary policy even before the coronavirus pandemic.