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Student Loan Forgiveness Creates Largest September Deficit Ever

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The Federal Government ran a $430 billion deficit in September. It was the largest monthly deficit since March 2021 when the last Covid stimulus bill was passed. The massive surge this month was due to another Biden giveaway in the form of $437 billion in student loan forgiveness.

Figure: 1 Monthly Federal Budget

Looking historically at the month of September shows just how much damage the program caused. September is typically a small deficit and even surplus month, but this year shows the largest September deficit ever by a mile. When you combine this with the irresponsible usage of the SPR, it is very clear Biden is trying to buy as many votes as possible heading into the mid-terms regardless of the long-term consequences.

Figure: 2 Historical Deficit/Surplus for September

The historical average for September is a $56 surplus, which makes this September look utterly abysmal.

Figure: 3 Current vs Historical

The Sankey diagram below shows the distribution of spending and revenue. The Deficit represented 47% of spending which was comparable to the entire spend in Education and Social Services!

Figure: 4 Monthly Federal Budget Sankey

The Treasury fiscal year ends in September rather than December, so the TTM numbers below are the official 2022 annual figures. The government racked up a $1.38T deficit in Fiscal 2022 despite all-time record tax receipts. Social Security was the biggest expense for the year but is set to get much bigger next year as payouts are adjusted up by 8.7%.

Figure: 5 TTM Federal Budget Sankey

Total revenue increased MoM, as September was the second largest revenue month of the year, behind only April.

Figure: 6 Monthly Receipts

Total Expenses for September can be seen below with the massive allocation to Education.

Figure: 7 Monthly Outlays

More important than the Education expense, which is a one-time event (for now), is the increase in Interest expense. As explained in the debt analysis, interest costs have been soaring lately. Last September, TTM interest expense was $352B. That figure now stands at $475B or 35% higher in one year! Since August, TTM interest has increased by $10B.

As interest rates continue to rise, this trend will get worse.

Figure: 8 TTM Interest Expense

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


    • National Defense, Medicare, and Veterans spending all surged YoY by more than 20%
    • Income Security fell by 27% mainly due to the elimination of child tax credit payments
    • On a TTM basis, 6 categories increased by more than 5%


    • Individual Income Taxes were up 6% YoY
        • On a TTM basis, they are up an incredible 28.8%
    • Corporate Income Taxes are up 25% on a TTM basis


    • The Total TTM Deficit fell 50% from 2021
        • While this would typically be great news, it is only because the Deficit was coming down from extremely elevated levels due to Covid

The massive surge in Individual and Corporate Tax receipts has been a major windfall for the government. However, as the recession gets worse and capital gain taxes dry up, this spigot of extra money will most likely dissipate. Even while the government was collecting record amounts of taxes relative to GDP, excessive spending prevented any relief to the unsustainable growth in Deficit spending.

Figure: 9 US Budget Detail

Historical Perspective

Zooming out and looking over the history of the budget back to 1980 shows a complete picture. It shows how a new level of spending has been reached and is only being somewhat supported by a major surge in tax revenues.

While the deficit has fallen from the 2020 high, there is no doubt more spending will be approved as the recession creates pain for millions of households.

Figure: 10 Trailing 12 Months (TTM)

The next two charts zoom in on the recent periods to show the change when compared to pre-Covid. The current 12-month period is $1.44T bigger than pre-Covid levels of 2019. Individual Taxes make up the vast majority of the difference, with 2022 exceeding 2020 and 2019 by more than $1T.

Figure: 11 Annual Federal Receipts

Unfortunately, the major windfall from this tax revenue surge is being consumed by massive spending. The 2022 Spending was more than $2T larger than the 2018 spending!

Figure: 12 Annual Federal Expenses

Due to the fall in spending and increased revenues, TTM Deficit compared to GDP has returned to pre-Covid levels of 5.5%.

Note: GDP Axis is set to log scale

Figure: 13 TTM vs GDP

Finally, to compare the calendar year with previous calendar years (not fiscal budget years), the plot below shows the YTD numbers historically. The recent surge in spending from Student Loan forgiveness has pushed the current YTD deficit to $998B, the fourth largest ever! Besides Covid, the deficit was only larger during the depths of the financial crisis in 2009.

Figure: 14 Year to Date

Wrapping Up

The Treasury has benefited from massive increases in Individual Taxes over the last 18 months. The CBO cannot explain all of the surge and thinks it may not all be permanent. Revenues will start to drop soon, as the recession takes its toll. Expenses continue to grow with higher interest rates, new spending bills, and inflation (e.g., Social Security). This combination will keep large deficits going indefinitely.

The Treasury has to fund these deficits with new debt issuance (at much higher rates). The Fed has been sidelined and is even exacerbating the problem with meager attempts at QT. At the same time, the biggest buyers of Treasuries historically, like foreign governments and institutional investors, are bailing from the market as reported by Bloomberg. This has created massive liquidity issues in the Treasury market, leading to higher volatility in a market that is typically the most stable in the world.

The Fed cannot stand on the sidelines forever. Something will break. Most likely, something already has broken and the problem has not yet come to light. When it does, the Fed is going to be forced to pivot rapidly, ending QT, resuming QE, and reducing interest rates. This is going to happen before inflation gets down to 2% which means the market will watch as the Fed gives up its inflation fight to rescue the market with more inflation. At this point, gold and silver will do what they have done for 5,000 years and preserve purchasing power.

Data Source: Monthly Treasury Statement

Data Updated: Monthly on eighth business day

Last Updated: Period ending Sep 2022

US Debt interactive charts and graphs can always be found on the Exploring Finance dashboard:

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