The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year which ended on September 30, the Treasury Department reported last week. Official figures showed the coronavirus pandemic fueled enormous government spending while tax receipts plunged as households and businesses struggled with the economic shutdown.
The budget deficit — the gap between what the US spends and what it earns through tax receipts and other revenue — was $2 trillion more than what the White House’s budget forecast in February. It was also three times as large as the $984 billion deficit in the 2019 fiscal year.
The federal government spent $6.5 trillion in FY2020, a large portion of which can be attributed to the $2.2 trillion stimulus legislation which Congress passed in March, while total federal revenues were only $3.4 trillion.
The shortfall of $3.1 trillion underscores the long-term economic challenge facing the United States as it tries to emerge from the sharpest economic downturn since the Great Depression.
In a statement accompanying the annual budget report, Treasury Secretary Steven Mnuchin highlighted the extraordinary level of money that has been pumped into the economy this year to combat the virus and prop up citizens and businesses.
With the $3.1 trillion deficit in FY2020, our national debt has now soared to $27.1 trillion, the largest in history. Of that total, nearly $21 trillion is classified as “debt held by the public” with the remaining $6 trillion referred to as “intra-governmental debt.”
The media and the politicians in Washington would like us to believe the $21 trillion of debt held by the public is our real national debt, not $27.1 trillion. They argue the $6 trillion in intra-governmental debt, which is owned by various government agencies, should not be included in the national debt because it’s “debt we owe to ourselves.”
That is simply ridiculous! All of the debt has to be paid off or rolled over when the bonds mature, regardless of who or what entity owns it.
The media and the pols in Washington also like to use only the debt held by the public when they calculate our debt-to-GDP ratio. At only $21 trillion, our debt-to-GDP ratio is only 102%, which is bad enough. But at $27 trillion, our real debt-to-GDP ratio is 135%, along with the likes of Greece, Italy and Japan.
In March and April, Congress approved close to $3 trillion in spending programs in response to the COVID-19 pandemic. This included hundreds of billions of dollars in aid for the unemployed and small businesses, as well as $1,200 stimulus checks for millions of Americans.
The economic lockdown sent monthly budget deficits to new records, with a shortfall of $786 billion in April alone, followed by yet another record of $864 billion in June.
Spending soared across government agencies this year. The Department of Education, for instance, spent nearly double what it did in FY2019, according to The Washington Post. The Small Business Administration spent close to $600 billion more than previous years due to its implementation of the Paycheck Protection Program for small businesses hurt by the virus.
Finally, as we all know, Nancy Pelosi and Treasury Secretary Mnuchin are currently negotiating a new stimulus which looks likely to come in around $2 trillion – with more likely to follow unless the economy rebounds strongly. The rebound we saw earlier this year seems to have plateaued over the last couple of months.
Obviously, the politicians in Washington, including President Trump, believe there’s no limit on how much we can borrow. And for now, at least, the bond market is taking it in stride. As I write this, the yield on the 10-year Treasury bond is only 0.80%.
I still predict, however, that the bond market will melt down at some point and usher in a new financial crisis. Unfortunately, there’s no way to know when.
LATE NOTE: The latest IBD/TIPP poll (Investor’s Business Daily), one of the most reliable public polls, yesterday showed President Trump pulling to within the margin of error against Joe Biden at 48.5% to 46%. This was a new high for Trump in this year’s poll. This is a significant move for the president since he was down 8 points in the same poll a week ago.
Rasmussen reported yesterday that Arizona has also narrowed to a margin of error race with Biden at 48% and Trump 46%. Rasmussen also has Ohio at Biden 48% and Trump 46%. The race is tightening as we get closer, as they nearly always do.
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