Just five months into fiscal 2021, the U.S.government has already run a budget deficit of over $1 trillion.
And in a year of massive deficits, the U.S. federal government charted its biggest monthly shortfall of fiscal year 2021 in February.
According to the Monthly Treasury Statement, the February deficit came in at $310.92 billion, pushing the fiscal 2021 budget shortfall to $1.05 trillion.
Prior to last year’s stimulus-fueled $3.13 trillion deficit, the U.S. government had only run annual deficits over $1 trillion four times, all during the Great Recession. The Trump/Biden administrations have now managed to do it in just five months. The previous record deficit for the first five months of a fiscal year was $652 billion set back in 2010.
Keep in mind this doesn’t factor in any of the spending just approved in the $1.9 trillion “American Rescue Act” stimulus bill.
Last month, the U.S. government spent another $559.24 billion. That was up 24.3 percent compared to February 2020. Including February outlays, total fiscal 2021 spending now stands at a staggering $2.48 trillion.
Federal government receipts in February came in at $248.31 trillion, also a 24.3 percent increase year-on-year. From October through February, government revenue is up 5.1 percent to $1.44 trillion
On March 1, the U.S. national debt eclipsed $28 trillion for the first time. According to the National Debt Clock, the debt to GDP ratio stands at 129.8 percent. Despite the lack of concern in the mainstream, debt has consequences. Studies have shown that a debt to GDP ratio of over 90 percent retards economic growth by about 30 percent. This throws cold water on the conventional “spend now, worry about the debt later” mantra, along with the frequent claim that “we can grow ourselves out of the debt” now popular on both sides of the aisle in D.C.
Even without additional stimulus, the CBO estimates the 2021 deficit will hit $2.3 trillion. That would rank as the second-largest deficit in U.S. history, behind only last year’s $3.13 trillion shortfall. The CBO also projects the national debt will swell to an unfathomable $35.3 trillion by 2031.
The Federal Reserve makes all of this borrowing and spending possible by backstopping the bond market and monetizing the debt. It is the engine that powers the biggest, most powerful government in the history of the world. The central bank buys U.S. Treasuries on the open market with money created out of thin air (debt monetization). This creates artificial demand for bonds and keeps interest rates low. All of this new money gets injected into the economy, driving inflation higher. The Fed expanded the money supply by record amounts in 2020.
The politicians, pundits and central bankers tell us that now is not the time to worry about the massive budget deficits and the growing national debt. The government has to borrow and spend because America faces an economic crisis. But nobody worried about the borrowing and spending back in 2019 when Donald Trump was bragging about the greatest economy in history. The budget deficit in 2019 was just a hair under $1 trillion. So, if we don’t worry about the debt when the economy is bad and we don’t worry about the debt when the economy is “booming,” when exactly do we worry about the debt?
Currently, the average American doesn’t really feel the impact of federal spending. Taxes remain low (relatively speaking). The Treasury simply borrows the money and the central bank monetizes the debt. But borrowed money has to be paid back. You will pay the bill – whether through higher taxes down the road or the inflation tax inherent in the Fed’s debt-monetization scheme. And in reality – both.
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