June Federal Budget Deficit Nearly Totals Entire 2019 Shortfall
The federal budget deficit in June totaled nearly the entire 2019 fiscal year shortfall and was bigger than the 2018 deficit.
The June deficit came in at $864.1 billion dollars, according to the latest Treasury Department report. To put that into perspective, the budget shortfall for fiscal 2019 was $984 billion and in 2018, the deficit was a “mere” $779 billion.
When the calendar year deficit for 2019 came in at just over $1 trillion, we said the federal government was spending us into oblivion. It’s hard to even come up with words to describe a monthly budget shortfall of $864 billion.
For the fiscal year beginning Oct 1, the federal government has spent $2.74 trillion more than it’s taken in. The previous record deficit for an entire fiscal year was $1.4 trillion set in 2009.
Spending in response to the coronavirus pandemic drove the deficit to these astronomical levels. Uncle Sam blew through $1.1 trillion in June alone. Outlays were up by a staggering 223% on the month. That pushed federal spending for the fiscal year to just over $5 trillion.
The government shutdown of the economy has also squeezed government receipts. Revenue was down 28%, falling to $241 billion in June. Uncle Sam should get some relief with an influx of tax payments this month with the filing deadline set for July 15, but there is no end in sight to the spending. It seems almost certain Congress will pass another stimulus bill before the end of the year.
It’s easy to blame the deficit on COVID-19, but the federal government was already spending as if there was a crisis before the pandemic. Through the first two months of fiscal 2020, the deficit was already 12% over 2019’s huge number and was on track to eclipse $1 trillion. Prior to this year, the US government had only run deficits over $1 trillion four times, all during the Great Recession. We were approaching that number prior to the pandemic, despite what Trump kept calling “the greatest economy in the history of America.”
Even with the economy supposedly in the midst of a boom, US government borrowing looked more like we were in the midst of a deep recession — before the government-induced coronavirus recession. Long-term US debt sales rose to levels not seen since the height of the financial crisis before the current financial crisis, and the Federal Reserve was already monetizing US debt with quantitative easing before the pandemic.
As of July 10, the national debt was approaching $26.5 trillion after having just eclipsed $26 trillion on June 9. According to the National Debt Clock, the debt to GDP ratio now stands at 132.55%. Studies have shown that a debt to GDP ratio over 90% retards economic growth by about 30%.
It’s hard to even fathom this level of debt. And nobody seems concerned. Virtually everybody agrees that trillions in government spending is “necessary” to boost the economy and mitigate the effect of the COVID-19 government shutdowns – Republicans and conservatives included. Everybody is a Keynesian now.
But nobody seems to be asking the most significant question: who is going to pay for all of this? After all, borrowed money has to be paid back.
The answer is simple: We will all be on the hook for this massive bill. We will either pay for it in higher real taxes or a massive inflation tax — probably both.