US Government Records Higher-Than-Expected Budget Deficit to Kick Off Fiscal Year 2024

The National Debt Clock is shown at a bus stop in Washington on July 31, 2023. (Madalina Vasiliu/The Epoch Times)

The U.S. government posted a higher-than-expected $67 billion budget deficit in the first month of the new fiscal year, the smallest October shortfall since 2017, according to new data from the Treasury Department.

Last month, the budget deficit tumbled by almost 24 percent from a year ago, when it came in at $88 billion.

In October, federal outlays totaled $470 billion, up by nearly 16 percent year over year. Last month’s spending was fueled by Social Security ($117 billion), national defense ($87 billion), health ($71 billion), and income security ($23 billion).

Interest payments were the second-largest spending item for the month, exceeding $88 billion.

Federal receipts surged by 27 percent year over year, topping $403 billion. This was an all-time high for the month, driven by incoming tax payments from California and several other states that extended their tax filing deadlines because of natural disasters. They supported a large share of the 70 percent jump in individuals’ non-withholding taxes and the 170 percent spike in corporate tax receipts.

U.S. officials forecast that by the end of the fiscal year, the interest on Treasury debt securities will surpass $1 trillion.

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Interest costs have spiked since the Federal Reserve launched its quantitative tightening initiative in March 2022, lifting the benchmark fed funds rate to a 22-year high of 5–5.25 percent. The average interest rate on the $26 trillion of outstanding Treasurys hit 3.05 percent last month, up from 2.19 percent in October 2022. With the central bank aiming for a higher-for-longer environment, servicing the national debt will continue to be an expensive endeavor.

In a statement on the updated budget results for the last fiscal year, the Treasury noted that President Joe Biden’s legislative accomplishments have helped reduce the deficit and will continue to help Washington enjoy savings.

“Earlier this year, President Biden signed into law over $1 trillion in bipartisan deficit reduction,” Treasury Secretary Janet Yellen said in a statement. “And looking forward, the President has put forward a budget that reduces the deficit by another $2.5 trillion over the decade by asking the wealthiest Americans and big corporations to pay a fair share, while supporting our historic investments in America’s long-term economic strength.”

CBO Numbers

Before the official Treasury data, the Congressional Budget Office (CBO) published its Monthly Budget Review. The nonpartisan budget watchdog forecast that the U.S. government borrowed $65 billion, citing a 9 percent drop in revenues. The shortfall was equal to $2.1 billion per day.

In fiscal year 2023, the federal government recorded a $1.7 trillion budget deficit amid declining revenues and growing outlays.

The national debt continues to climb, skyrocketing by more than $500 billion since Sept. 29. In total, the national debt stands above $33.7 trillion.

After running a deficit to start the fresh fiscal year, U.S. officials have a long way to go to ensure that the government’s fiscal situation is under control, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“Few would argue that borrowing $65 billion in a month, indefinitely, would be sustainable. It’s high time that policymakers take this problem seriously and put in place measures that reduce our borrowing and stabilize the growth of the national debt,” Ms. MacGuineas said in a statement.

Financial and political observers warn that politicians might need to act on the budget with more urgency as investor demand for government debt weakens.

State of Treasury Demand

Wall Street is paying greater attention to the sale of U.S. government bonds.

At the Nov. 9 $24 billion Treasury auction of 30-year Treasurys, investors were given a 4.769 percent yield. This was more than five basis points higher than the consensus estimate.

Additionally, the primary dealers, institutions that purchase supply not bought by investors, scooped up nearly 25 percent of the debt. Over the past year, the average has been about 12 percent.

Last week, the Treasury’s $40 billion auction for the benchmark 10-year bond was uneventful, with direct and indirect bidders buying up 85 percent of the supply.

The latest auction events were part of the Treasury Department’s $112 billion debt sale announced earlier this month to manage the government’s ballooning debt, deficits, and charges.

Over the past year, the Treasury has been flooding capital markets with bonds.

In the government’s first quarter, Washington borrowed $776 billion, down from the previous quarter’s $1.01 trillion. Looking ahead to the first three months of 2024, the Treasury says it will borrow $816 billion, higher than the market forecast of $698 billion.

“The Treasury is simply sucking all the oxygen out of the room,” EJ Antoni, an economist at The Heritage Foundation, told The Epoch Times, noting that the only way to attract investors and savers is by offering a higher yield. “This is completely unsustainable.”

Mr. Antoni forecasts that the budget deficit is on track to be $3 trillion and that interest payments will probably exceed $1.5 trillion in terms of gross interest payments.

“It is no wonder the yields on Treasurys continue going higher,” he said.

The White House projects that it will record a shortfall of $1.846 trillion in the current fiscal year.

Following Moody’s Investors Service’s U.S. government downgrade from “stable” to “negative” on Nov. 10, Treasury yields popped during the Nov. 13 trading session. Across the board, bonds are at, near, or above the 5 percent market. But the Heritage economist thinks that the 10-year Treasury could hit 8 percent within the following year.

“This is a debt death spiral, where, as you borrow more, you now have a larger debt balance, which means you have to pay more interest, which means you have to borrow more, and you’re right back where you started,” he said.

Recently, it was estimated by Bloomberg economists that annualized interest payments on the U.S. government debt surpassed $1 trillion at the end of October.