Debt acceleration: why the US budget deficit has grown more than 100 times

In June 2020, the US budget deficit amounted to $ 863 billion, compared with $ 8 billion for the same period of 2019. This is stated in the report of the budgetary administration of the Congress of the States.

Thus, over the year, the shortage of funds in the US treasury has grown more than 100 times.

In general, for the first nine months of fiscal year 2020 (ending September 30), federal budget expenditures exceeded revenues by $ 2.7 trillion. Relative to last year's figures, revenues to the treasury decreased by 13%, while spending increased by 49%.

Analysts explain the sharp increase in the budget deficit by the growing costs of the American authorities to eliminate the consequences of the COVID-19 pandemic. To date, the United States remains the leader in the number of coronavirus infected. At the same time, quarantine restrictions introduced in the spring provoked a massive reduction in trade and passenger traffic, as well as the closure of enterprises.

To support the economy, the US government has already allocated about $ 3 trillion. However, the corresponding amount may still increase at least twice. Leading Forex Analyst Ivan Kapustyansky spoke about this in an interview with RT.

“As part of the fight against the pandemic, the United States has embarked on large-scale fiscal stimulus measures. For these purposes, Washington plans to spend more than $ 6 trillion, or a quarter of the country's GDP. This is the largest aid program in US history, ”said the expert.

According to the US National Bureau of Economic Research, as a result of the outbreak of COVID-19 in February 2020, the United States officially began a recession. Thus, the longest period in the history of the growth of the American economy ended, which lasted ten and a half years.

According to the Bureau of Economic Analysis, US Department of Commerce, in the first quarter of 2020, the country's GDP fell by 5% in annual terms. At the same time, already in the II quarter the indicator may fall by 35.5%. The corresponding calculations were made by specialists of the Federal Reserve Bank of Atlanta.

As Director of the Academy of Finance and Investment Management Arseniy Dadashev noted in an interview with RT, today a number of quarantine restrictions still continue to apply in the United States. Against this background, US budget revenues will continue to decline in the near future, as a result of which the deficit may further increase, the expert said.

"In June, cash receipts to the treasury decreased by about 30% compared to the same period in 2019 - to $ 242 billion. If the reduction in tax deductions from the business continues, then by the end of this year the US budget deficit could reach 15% of GDP or $ 4 trillion," - predicts Dadashev.

Note that the last time the US budget deficit exceeded the 15% mark in 1945. This is stated in the materials of the Federal Reserve Bank of St. Louis.

Debt dependence

To cover the budget deficit, the US Treasury Department issues special treasury bonds (treasuries). American and foreign investors buy securities and receive a steady income on them, in fact, lending their money to the US economy. These funds are used to pay off the budget deficit, but at the same time, such a policy threatens the excessive growth of the debt burden on the country's economy. This was told to RT by the expert of the investment strategies department of BCS Broker Arseniy Bezhin.

“The growing deficit is funded solely by raising the level of US government debt. Since the beginning of 2020, the figure has grown by almost $ 3 trillion and reached $ 26 trillion, although earlier government debt grew at a rate of no more than $ 1.5 trillion per year. If the Trump administration continues to pump up the economy with credit, then in the coming months the public debt will continue to break records, and at the end of the year it risks reaching $ 30 trillion, ”Bezhin said.

In the future, the growth of public debt will only increase the burden on the country's budget. This point of view in a conversation with RT was expressed by Vadim Iosub, senior analyst at Alpari Eurasia Information and Analytical Center.

“Already, the public debt is creating tremendous pressure on the economy, withdrawing more and more new resources from the budget for its services and current repayments. Thus, public debt is growing almost in proportion to the growth of the budget deficit, ”the expert explained.

It is noteworthy that in March the Federal Reserve System of the United States announced an unprecedented expansion of the quantitative easing program to help the treasury and the economy as a whole. The regulator began to print dollars and in an unlimited amount independently buy Treasuries in the stock market. In less than five months, the volume of treasury bonds on the Fed's balance sheet increased from $ 4.2 trillion to $ 7 trillion.

The Fed’s policy of issuing new dollars and redeeming government bonds should lead to an increase in the money supply in the economy and help increase GDP growth. At the same time, the actions of the Federal Reserve pose risks to the financial stability of the country.

“The policy of the US Federal Reserve can indeed provide a certain increase in GDP. But in the long run, a large amount of money supply may be accompanied by accelerated inflation and a weakening dollar. Taking into account external shocks and the beginning of the second wave of coronavirus, the following dependence may arise: the more dollar liquidity is in the system, the less the American currency will cost, ”concluded Arseniy Bezhin.