The Biden administration has continued the government spending spree of the Trump administration started and has even managed to speed it up. Never before has the federal government run a budget deficit this big through the first six months of a fiscal year.
The U.S. government ran a budget deficit of $659.59 billion in March, pushing the budget shortfall to a record $1.7 trillion through the first half of fiscal 2021, according to the Treasury Department’s Monthy Treasury Statement. The March budget deficit ranks as the third biggest monthly shortfall in U.S. history, driving Uncle Sam to the biggest half-year deficit ever.
Prior to last year’s stimulus-fueled $3.13 trillion deficit, the US government had only run annual deficits over $1 trillion four times, all during the Great Recession. Uncle Sam is already on the fast track to $2 trillion with six months left in the fiscal year. The previous record deficit for the first six months of a fiscal year was $829 billion set back in 2011.
Uncle Sam spent nearly a trillion dollars in March. The $927.21 billion in outlays last month brought total fiscal 2021 spending to a staggering 3.41 trillion.
Meanwhile, Treasury receipts in March came in at just $267.61 billion. That was a 13 percent increase over last year but didn’t come close to covering the massive Trump/Biden spending spree.
On March 1, the U.S. national debt eclipsed $28 trillion for the first time. Currently, that represents $85,255 of debt for every American citizen.
According to the National Debt Clock, the debt to GDP ratio stands at 130.02 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.
As financial analyst Peter Schiff put it in a tweet, all of this government comes at a price.
We didn’t get $659 billion worth of government spending for free. The public will pay the balance through the inflation tax. That means consumer prices are headed much higher.”
The inflation tax will hit us as the Federal Reserve monetizes this massive debt. That means more bond purchases and more money printing.
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. We see this playing out before our eyes as the Fed continues to expand the money supply by record amounts.
The Fed had worked itself between a rock and a hard place. It has to print trillions of dollars to monetize the massive deficits. But that is causing inflation expectations to run hot. That is putting upward pressure on interest rates. But you can’t have rising rates when your entire economy is built on debt. The only way the Fed can hold rates down is to buy more bonds, which means printing more money, which means even more inflation. You can see the vicious cycle. At some point, there is a fork in the road and the Fed will have to choose. Step up and address inflation and let rates rise, which will burst the stock market bubble and collapse the debt-based economy, or just keep printing money and eventually crash the dollar.
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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