Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Another Massive Deficit With More Spending Coming Down the Pike

  by    0   1

The US is heading for economic lockdown as the impact of the coronavirus grows. To cope with the crisis, President Trump has promised fiscal stimulus. The actual plan remains unclear, but the Trump administration has floated a reduction in payroll taxes, along with bailouts and loan guarantees for struggling industries. While the details are murky, one thing is certain — it will cost billions of dollars.

Meanwhile, the US government is already living far above its means. Uncle Sam recorded another massive budget deficit of $235 billion last month, according to the latest Treasury Department report.

The February deficit was up about $1 billion year-on-year. That may not seem significant, but it follows on the heels of a $32.6 billion deficit in January. The US government ran a surplus in January 2018.

February’s shortfall brings the FY2020 budget deficit to $625 billion. That compares with $544 billion at this point in FY2019.

The deficit trajectory is clearly upward, even before adding billions in spending for coronavirus relief.

Spending continues to be the culprit. Government revenues were up 12% year-on-year, but spending also rose 5% compared to February 2019. So far in this fiscal year, the federal government has spent just a hair under $2 trillion.

 

The US government was on track for a $1 trillion deficit this fiscal year, even before coronavirus. These are the kind of budget deficits one would expect to see during a major economic downturn. The federal government has only run deficits over $1 trillion in four fiscal years, all during the Great Recession. We’re approaching that number today, despite having what Trump keeps calling “the greatest economy in the history of America.”

Now it looks like the US might be heading toward an actual economic downturn. If deficits are this bad now, what is it going to look like when coronavirus spending starts to come through the pipeline? As Peter Schiff said in a recent podcast, “They’re talking about loan guarantees for everybody. How is the government that’s the world’s biggest debtor going to guarantee anybody else’s debt?”

This raises another question: how will the growing deficits impact the bond markets?

Investors poured into US Treasuries as a safe-haven as the coronavirus crisis grew. Interest rates plunged, with the yield on the 10-year Treasury dipping to record lows below 0.5%. At some point, the demand for bonds will ebb, but the supply certainly won’t. The US Treasury is going to have to sell a massive amount of bonds to fund all of this deficit spending. Then what?

In fact, the bond bubble may have already popped with the promise of government stimulus. This could foreshadow rising interest rates – a nightmare for a government trying to run on borrowed money.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

World’s Largest Gold ETF Sees Record Inflows

The world’s largest gold ETF saw record inflows on Friday, a bullish sign for the yellow metal. SPDR Gold Shares (GLD) ranks as the world’s largest gold fund. It saw a net inflow of $1.63 billion on Friday. It was the largest net inflow in dollar terms since the fund was listed in 2004.

READ MORE →

War on Cash: The Digital Dollar

Last week, the Federal Reserve released a “discussion paper” examing the pros and cons of a potential US central bank digital dollar. According to the Federal Reserve press release, the central bank hopes to get public feedback on the idea. “We look forward to engaging with the public, elected representatives, and a broad range of […]

READ MORE →

The Federal Reserve Is a Money-Making Enterprise

The Federal Reserve is a money-making enterprise. This probably shouldn’t come as any surprise, given that the central bank can create money out of thin air and buy yielding assets. Still, the Fed rakes in a staggering amount of money. The central bank recently released its unaudited preliminary financial statement for 2021.

READ MORE →

Consumer Sentiment at 10-Year Low

Joe Biden is telling us the economy is back on track. And the Federal Reserve insists it can slow down the inflation freight train. But the average American isn’t quite so sanguine. Consumer sentiment plunged to the second-lowest level in a decade in January, according to the University of Michigan Surveys of Consumers.

READ MORE →

Could Gold Shine in 2022 Despite the Fed’s Proposed Inflation Fight?

Despite an inflationary freight train, gold struggled to gain ground in 2021 as the markets fixated on the Federal Reserve and the possibility of tighter monetary policy to fight inflation. Will gold continue to fight headwinds in 2022 as the Fed launches its “inflation fight,” raises rates and possibly begins to shrink its balance sheet? […]

READ MORE →

Comments are closed.

Call Now