The Budget Deficit — Still Surging
Author: Greg Valliere
December 10, 2024
BUDGET DATA RELEASED YESTERDAY shows that red ink in this new fiscal year could exceed $2 trillion, with staggering deficits likely in the next few years.
THE SHORTFALL IN FISCAL 2025 probably will top last year’s $1.8 trillion — an amazing total, considering that the economy is growing solidly. One can only imagine the size of the deficit if the economy was soft.
THE CONGRESSIONAL BUDGET OFFICE released its monthly budget review yesterday, which showed that in the first two months of this fiscal year, the federal government has run up a deficit of $622 billion.
“THAT’S $242 billion more than the deficit recorded during the same period last fiscal year,” CBO said, although the beginning and ending of the two fiscal years exaggerated the comparisons.
REGARDLESS OF THE MONTH-TO-MONTH comparisons, the deficit continues to grow. This is a huge issue with the public, which is convinced that deficits have fueled inflation. When we meet with investors, especially retail investors, the anxiety over deficits is immense.
AND ON CAPITOL HILL there’s a growing movement by right wing activists to crack down on the deficits. The Trump administration is hard to figure — some members of the incoming administration aren’t concerned that deficits could rise further if there are more tax cuts and higher spending, but hard liners will resist.
A CONTINUING RESOLUTION, keeping the government open through the holidays, is likely to pass in the House in the next few days, but hard-line Republicans won’t support it. Speaker Mike Johnson will have to rely on votes from Democrats.
JOHNSON’S LUCK may run out in the spring, when still another debt ceiling fight looms. Democrats are not inclined to bail out Johnson again, and he faces a major challenge from his restive Freedom Caucus.
A DEBT CEILING DEAL IS UNLIKELY until summer, when the Republicans will push for actual cuts in the budget. That’s unlikely, but something close to a spending freeze is possible.
SPENDING HAWKS like Elon Musk are determined to fight for actual cuts, but that would require the unthinkable — reductions in entitlement spending on Medicare, Social Security, etc. That won’t happen.
OUR CYNICAL VIEW is that even a spending freeze would be a remarkable accomplishment, which means that deficits of close to $2 trillion a year is the best case scenario. Total U.S. debt is about $36 trillion.
TRUMP AND HIS AIDES acknowledge that actually reducing the deficit is unlikely; they say, without much evidence, that stiff new tariffs could reduce the red ink. Perhaps, but the problem isn’t trade, the problem is spending.
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