Budget Deficit Represents More Than 35% of Total Federal Expenditures

The federal budget deficit in October came in at $165 billion. That represents a staggering 36.8% of total expenditures for the month.

This is slightly below the 12-month average where the deficit represented 39.3% of total expenditures. Over the twelve-month period, the total deficit was $2.65 trillion driven by total expenditures that reached $6.7 trillion.

The following analysis breaks down the huge October federal budget deficit and sets it in historical context.

The two Sankey diagrams below show the monthly and twelve-month picture to depict the size of each revenue and expenditure source.

Figure: 1 Monthly Federal Budget Sankey

Labor and SBA are significantly larger in the 12-month diagram due to the stimulus packages that were distributed earlier this year. The biggest takeaway though: to close the budget deficit either Individual Taxes would need to more than double or Health and Human Services AND Social Security would have to be eliminated completely!

Figure: 2 TTM Federal Budget Sankey

The next chart looks at each of the last 18 months to show the net shortfall against revenue and expenditures. Revenues dipped back down last month, but so did expenses. This resulted in a total deficit that is below average by about 25%.

Figure: 3 Monthly Federal Budget

To better understand what is driving the large outlays and receipts, the next two charts break down both sides of the budget into different categories.

Figure: 4 Monthly Receipts

Figure: 5 Monthly Outlays

The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:

Total

• Outlays only decreased 14% vs Receipts which fell almost 40%. This caused the deficit to increase 180% MoM
• On a TTM basis, Outlays are 51% above where they were in the period ending Oct 2019 where receipts are only up ~18%
  • Since last Oct, Receipts have increased almost 20% vs. flat Outlays. This resulted in a smaller total deficit by almost $600B

Outlays

• Interest on the debt fell quite dramatically by 50% MoM
• Most other spending categories were down except for “Treasury – Other” (Stimulus checks) which increased $50B

Receipts

• Every category of Receipts fell for the month but increased YoY

Figure: 6 US Budget Detail

The next chart shows how much expenditures have increased when compared to pre-Covid. With no more stimulus checks (for now) and the SBA closing the PPP Loan offering, 2022 should fall back down some. It will most likely not reach pre-pandemic levels, but it should get below $6T.

Figure: 7 Monthly Federal Budget

Historical Perspective

Zooming out and looking over the history of the budget back to 1980 shows a complete picture and just how extreme the last two years have been. The chart below shows the data on a TTM basis to smooth out the lines.

While the current extreme period will pass, new spending has been planned, not to mention bills finally coming due (e.g. baby boomer social security payments). This makes it unlikely the federal budget deficit will ever get back below $1T despite CBO projections for sub $1T for 2023-2025.

Figure: 8 Trailing 12 Months (TTM)

While the chart above does not paint a pretty picture, it is important to put the entire economy in perspective. Below compares the TTM federal deficit to GDP. The peaks below are not solely driven by increases in debt. Usually, recessions (which by definition are 2 quarters of falling GDP) are accompanied by increased spending in the form of stimulus.

With this context, it makes the lead up to 2020 more concerning. The ratio had started rising in 2015 even though GDP was rising. This indicates deficits were growing at a faster clip than GDP. Even without Covid or the new spending, this trend was set to continue. It is unlikely the US TTM deficit will get back below 5% of GDP without major reductions in government spending.

Note: GDP Axis is set to log scale

Figure: 9 TTM vs GDP

Finally, to compare the calendar year with previous calendar years, the plot below shows the Year to Date (YTD) figures for each year through the current month. The government fiscal year technically ends in September, but that is harder to contextualize (e.g. when did Covid start in relation to October vs January). With no new Covid stimulus packages in the pipeline, it will be interesting to see if the current year falls further behind 2020 in the coming months. 2021 will set a new record in total revenue collected.

Figure: 10 Year to Date

What it means for Gold and Silver

The Budget Deficit matters for gold and silver because it shows how much the US government needs to borrow to make up for the revenue shortfall. More borrowing usually means higher interest rates. As the debt analysis shows, higher interest rates would prove devastating for the federal budget in the medium to long term and also prove devastating on the rest of the economy (corporate debt, mortgage rates, etc.).

All of this puts more pressure on the Fed to increase monetary stimulus through both Quantitative Easing and maintaining low-interest rates. This will push inflation higher, devaluing the dollar. Gold and silver offer protection in this environment.

Data Source: Monthly Treasury Statement

Data Updated: Monthly on the eighth business day

Last Updated: September 13, 2021, for period ending Oct 2021

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