ZeroHedge Explains The Fiscal Cliff
Endgame
An important piece by ZeroHedge was posted today entitled Endgame: Interest on US Debt Surpasses $1 Trillion for First Time Ever, Exploding August Budget Deficit to Record High (link). Here is a summary of that piece followed by the original story
The Fiscal Cliff is Coming
2024 was supposed to be the year the U.S. budget deficit would start returning to normal, especially after the crises of the past few years. For a while, it looked like things might improve. The deficit initially overtook 2023’s pace but slowed down for a bit—until August came.
In August, the U.S. posted a $380 billion budget deficit, up more than 50% from July’s $243 billion. That’s a huge leap, far exceeding the expected $292.5 billion. The Treasury also released this number quietly in the early morning hours, likely to avoid attention.
What happened? The Biden administration seemed to pour an immense amount of money into the economy, likely trying to prevent a recession ahead of the elections. Government spending surged to $686 billion in August, the highest since March 2023.
Only a few months during the COVID crash saw such extreme levels of spending. On the revenue side, government receipts did improve, thanks to capital gains taxes from the strong stock market.
But this positive development is overshadowed by a major issue: the cost of servicing U.S. debt. Interest on the debt has reached a record $1.049 trillion for Fiscal 2024, with one month left in the fiscal year.
When annualized, this number hits $1.2 trillion—making interest the second-largest government expense, just behind Social Security.
And it’s only getting worse. Interest costs are on track to surpass Social Security, potentially becoming the largest U.S. government outlay by late 2024 or early 2025.
In short, the U.S. is facing a financial cliff, with interest on the debt spiraling out of control. It raises the question: who would even want to be in charge when the inevitable crash happens? Let Kamala handle it.
The idea of accelrationism is now taking hold on the fiscal conservative side because, this has a life of its own, and there is seemingly no going back.
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Endgame: Interest On US Debt Surpasses $1 Trillion For First Time Ever, Exploding August Budget Deficit To Record High- ZEROHEDGE
2024 was the year when the runaway US budget deficit was supposed to gradually normalize, and after two crisis-years, the US was supposed to end its drunken sailor spending ways. And for a while there, it seemed touch and go, with the cumulative US deficit initially overtaking 2023 - forget about the batshit insane 2021 and 2022 when the deficit hit a mindboggling 18% of GDP...
... before slowly easing back for a few months, only to sprint ahead of 2023 once more in August...
... when THIS happened: an August budget deficit of a staggering $380 billion, up more than 50% from the $243 billion in July, and up more than 55% from July, and up 66% from last August... oh, and almost $100 billion more than the median estimate of $292.5 billion, which may be why the Treasury quietly snuck the number out by leaking it after 5am ET when everyone was sleeping, not at its regular time of 2pm ET.
That's right, in a year when the monthly budget deficit was meandering along in its merry neo-Chernobyl ways, "not great, not terrible", someone in the BIden admin had the brilliant idea to spend a metric asston of money to reboot the economy last month so we don't get a recession just in time for the elections. And sure enough, government spending went into absolutely epic overdrive last month, as outlays hit a mindblowing $686 billion, the highest since March 2023, and only a handful of crisis months during the covid crash saw greater government spending in any given month.
Here is another way to show the data: smoothing out for outlier months, by presenting the 6 month moving average: well, it just hit the highest... since covid!
For those wondering how government receipts have performed during this period of exploding spending, here is the answer:
... which is remarkable because while spending is absolutely exploding, revenues have also managed to bounce back, largely thanks to capital gains taxes on the surging stock market.
Yet looking at the dire big picture, it is unfortunately all downhill from here for one simple reason: we have now crossed the Minsky Moment in terms of how much the US spends on interest on its debt, which as regular readers know is hitting a new record high every day - it just closed above $35.3 trillion - and is growing by about $1 trillion every 100 days. That means that with interest rates at 40 year highs, the prediction we made last July, has finally come true because according to today's Budget statement, the amount spent on gross interest in August was $92.3 billion...
... which means that the cumulative total for Fiscal 2024 - where there is one more month to go until the end of the fiscal year (which ends Sept 30) - just hit an all time high of $1.049 trillion, the first time in history when interest on US debt has surpassed $1 trillion.
And what's worse, this number is not even annualized (as explained, it's just for 11 months of the year): annualized, US debt comes out to $1.158 trillion, or $1.2 trillion rounded up as the Treasury Department itself admits...
... and the stunning punchline is that as of today, gross interest on US debt has surpassed not just Defense spending, but also Income Security, Health, Veterans Benefits and Medicare, and is now the second biggest outlay of the US government, second only to Social Security, which is roughly $1.5 trillion annualized.
But wait, there's more: the latest numbers confirm that we are well on our way to hitting our other forecast from April 1, of the US hitting an insane $1.6 trillion in interest expense by the year-end...
... which mean interest expense will soon surpass Social Security spending and become the single largest outlay of the US government, some time in late 2024 or early 2025 at the earliest.
In other words, game over.
Zerohedge articles are awesome...tks Professor Vinny for taking the time out of you busy schedule to write articles for them👍🏻👍🏻😉
Read that this AM and didn't get all the nuances - now I do - thanks Vince
No wonder the morons in USA.Gov are trying their damndest to start a war...any war, any where - the bigger the better. Then it's "default city".