Fiscal Spending Up 18.7% MoM and 4.1% YoY

The federal budget deficit for September 2021 was $61.5 billion, down from the $171 billion in August. Even though the deficit fell 64% MoM, it was driven primarily by receipts. Spending was up 18.7% MoM but receipts were up 71.2% driven by a surge in corporate and individual taxes.

September marks the end of fiscal year 2021 for the Government. The Fed ran the second-largest budget deficit in US history. Similar to the MoM picture, this was not due to a fall in spending. Spending increased 4.1% YoY to a whopping $6.8T. This was 53% higher than the $4.4T for fiscal year 2019. Receipts were up 18.3% YoY, rising from $3.4T to $4T. This led to a net fall in the deficit from $3.1T to $2.8T.

The charts below show the monthly amounts.

Figure: 1 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. September saw the largest corporate tax amount ($86.7B) for at least the past 18 months.

Figure: 2 Monthly Receipts

The high spending is very concerning as the chart below shows. “Treasury – Other” represents stimulus checks, so it makes sense this has fallen in the most recent month. When this variable is removed, the month of September stands larger than most other months going back over the last year.

Figure: 3 Monthly Outlays

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

Total

• As highlighted above, outlays have increased but receipts increased faster providing relief. This won’t always be the case, so it will be important to see if spending comes down in the coming months.
  • Biden still has a massive spending bill being pushed through Congress.

Outlays

• Health and Human Services (HHS) spending has jumped up 45% MoM and exceeded the 12-month average. This is concerning as spending should be falling at HHS as COVID has come under more control
• Education spending spiked 632% as the school year got underway
• Labor, SBA, and Treasury Other have all fallen dramatically as stimulus money has run out

Receipts

• Corporate taxes are up 180% compared to the 12-month average
• Individual taxes increased 73% MoM but are only up 26% when compared to the monthly average

Figure: 4 US Budget Detail

The current surge in tax revenue could be attributed to many things. Taxes on stimulus spending, fiscal year-end related items, or tax payments being made in advance of the October tax deadline (in normal years, you can defer taxes to October if you don’t have the necessary information to file in April).

The chart below looks at expenditures on a TTM basis back to 2016. As can be seen, spending was increasing steadily before the pandemic. Considering the current administration and Congress, this trend is not likely to slow. Additionally, politicians are using the last 18 months as evidence that they can spend massive amounts without immediate repercussions. With the Fed monetizing almost all the debt, there is nothing to slow down the increased spending. Eventually, the massive deficit will catch up to the economy and budget, and kicking the can will become impossible.

Figure: 5 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: 6 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.

Figure: 7 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 is on track to also be a record year in terms of revenue.

Figure: 8 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: Sep 2021

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