The chart below shows that the $1.695 trillion US annual deficit in the year ending 9/30/23 was up from $1.38 trillion in the prior year and the highest with the exception of the ’20-’21 Covid years. .
But it’s worse than that.
Aside from the fact that for some reason the debt went up by $460 billion in the first three weeks of the US government’s new fiscal year; the chart shows that in twelve of the last sixteen years the debt went up by more than the annual deficit. The total extra spending, “off budget” and apparently borrowed from the Social Security (Ponzi-like) Trust Fund, was a cool $4.96 trillion. Only with governmental accounting:).
Safe to say that, with the running start, this year’s (9/30/24) operating deficit will be higher than in ’23.
It is worth noting that aside from ’20 and ’21 Covid-driven years, when there were a lot of moving parts, funds allocated and not spent, etc., no doubt contributing to the offsetting “over” and “under”, all the material “misses” since ’08 produced more year end debt than the annual deficit would have indicated.
The above described situation is not new, but it does seem to be getting a bit more attention. We don’t know when it will really matter to capital markets and it is well known that Japan, for one, has been carrying debt, relative to their GDP, about twice that of the USA. However, Japan generates a trade surplus and their public has a much higher savings rate, so they have been able, while implementing their own easy money policies, to forestall the inevitable adjustment to their own financial system. For instance, the Japanese Central Bank owns about 60% of alll their domestic ETFs, as well as over 50% of all the Japanese government debt. In essence, the Japanese capital markets are well along the road to being nationalized, which, the last time we checked, has not been described as an objective in the USA.
Back in the USA, the record deficit and debts are taking their toll on our economy, just as Rogoff and Reinhart predicted ten years ago in “This TIme is Different”. It’s also increasingly clear that the normalized interest rates, soon to cost the US government almost one trillion dollars annually, seriously restrict more productive spending.
We liken the increasing deficit and debt burdens (worldwide) to a series of snowstorms accumulating on a mountain slope. One never knows which storm, or even a snowflake, will trigger a disastrous avalanche. We are not the first to point out that most crises develop very slowly and then very quickly.
These are long term trends we are discussing and might not matter any time soon, but be careful out there!
Roger Lipton