Breaking Down the $171 Billion August Federal Budget Deficit
The Federal Budget Deficit for August 2021 was $171B which was down from the $302B in July. The chart below shows the Federal Budget for the previous 18 months.
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.
Figure: 2 Monthly Receipts
Figure: 3 Monthly Outlays
The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:
- Receipts stayed relatively flat while spending fell by $125B
- On a TTM basis, Outlays are 55% above where they were in the period ending Jul 2019 where receipts are only up ~15%
- Since last Aug, both Outlays and Receipts have increased but Receipts have actually grown faster (15.8% vs 7.1%)
- SBA Spending collapsed and even turned positive compared to last month. This is most likely due to PPP loans being repaid.
- Spending on HHS fell almost 50% month-over-month despite the sharp rise in Covid cases
- Treasury Other (Stimulus checks) actually increased MoM but remains below the 12-month average
- The increase is most likely due to the child tax credit
- Interest on the debt increased almost 20% jumping to $57B compared to $47B TTM avg
- This is concerning given that interest rates are still fixed at zero. Perhaps this is related to the Debt Ceiling issue.
- Corporate Taxes fell to $3B, down 90% compared to TTM avg
- Individual taxes increased $8B MoM, but compared to the previous TTM ending in Aug 2020 taxes have increased 22.1%
Figure: 4 US Budget Detail
The current surge in tax revenue could be attributed to increased stimulus. As the stimulus slows, spending will fall but so will tax receipts. The question going forward is how this dynamic plays out and whether deficits can fall back into a range closer to $1T (still extremely large by historic standards). With new spending planned and a potentially weaker than expected economy, it is hard to see a scenario where the budget deficit comes into a sustainable range.
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
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: September 13, 2021, for period ending Aug 2021