The U.S. government recorded a larger-than-expected budget deficit of $314 billion in November, up 26 percent from the same time a year ago, and higher than the October shortfall of $67 billion, according to new Treasury Department data.
Last month, total outlays were $589 billion, up 17 percent from the same time a year ago. The increase in federal spending was driven by Social Security ($116 billion), Medicare ($79 billion), and national defense $70 billion).
Net interest payments were the fourth-largest budget item, reaching $72 billion.
Total receipts were $275 billion, with individual income taxes and social insurance and retirement revenues accounting for most of the government’s coffers in November. Revenues climbed 9 percent year over year.
In the first two months of fiscal year 2024, the federal deficit stands at $381 billion.
Before the official Treasury data, the Congressional Budget Office (CBO) projected in its Monthly Budget Review that the U.S. government ran a $317 billion budget deficit in November.
“There’s no way around it: Congress has a sleigh full of problems this holiday season. Not least of which is the fact we just borrowed $383 billion in the first two months of the fiscal year—$6 billion borrowed each day—without even doing anything differently in that time,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget (CRFB), in a statement.
Ms. MacGuineas added that Washington should offset new spending or tax cuts.
A Brief Look at the National Debt
According to Treasury data, the national debt is $33.847 trillion as of Dec. 8, making it on track to top $34 trillion by the end of the year or to kick off 2024.Since June 2, when then-House Speaker Kevin McCarthy (R-Calif.) and President Joe Biden reached a debt-ceiling agreement, the national debt has soared by approximately $2.4 trillion.
Despite widespread agreement that the U.S. government is on an unsustainable fiscal path, RBC economists disagree, writing in a research note that the imbalances incurred will not yield a debt crisis.
“For at least 40 years, we have been hearing how U.S. fiscal imbalances are unsustainable. And for all that time, those imbalances have been sustained, the U.S. economy has grown, and financial markets have generated positive returns,” RBC stated.
“Given this outcome, we find it somewhat surprising that the press continues to attach so much importance to U.S. debt levels. People generally focus on strategies that have worked, and this input has been an unmitigated failure for decades. We think that history is likely to continue and that positioning for a U.S. debt crisis is likely to lead to subpar returns.”
However, the financial institution conceded that the country has taken on more expensive debt “and is adding to the burden at a faster pace.”
This has been noticed by Fitch and Moody’s this year, forcing the credit-rating agencies to downgrade Washington and forcing the country to lose its AAA status amid fiscal deterioration and government dysfunction.
All Quiet at the Treasury Auction
Wall Street has been paying closer attention to Treasury auctions. The Treasury sells bonds to financial market distributors and dealers during these events. For years, they have been humdrum affairs, but the latest size of the department’s issuance has captured the attention of financial markets.The Treasury held auctions for the three- and 10-year bonds on Dec. 11, leading to some investors’ consternation.
The $37 billion auction of the three-year note saw a lack of investors, leading primary dealers—banks and other financial institutions that buy supply left from uninterested investors—to scoop up roughly 26 percent of the issued bonds. The debt instrument also produced a higher-than-expected yield.
A drop in investor demand was prevalent during the $49.5 billion 10-year Treasury auction, with primary dealers buying around 17 percent of the supply.
The Dec 12. $21 billion auction for the 30-year bond came in better than expected and delivered a solid internal performance as foreign and domestic buyers acquired nearly most of the supply.
Over the last 12 months, the average rate for primary dealers buying Treasury securities has been about 11 percent.
In October, the Treasury announced that it plans to borrow $776 billion in the government’s first quarter and another $816 billion in the first three months of 2024.
Apollo, one of the world’s largest asset managers, recently forecast that Treasury auction sizes in 2024 will be about 23 percent higher than in 2023. Some market observers believe that the Federal Reserve could be a buyer of last resort of U.S. government bonds if the demand weakens. However, the central bank is still engaged in its quantitative-tightening cycle, as it tries to reduce its enormous balance $8 trillion balance sheet by unloading its Treasury security holdings.
The Treasury market has cooled off since the intense volatility that began in September. After medium- and long-term yields topped 16-year highs of 5 percent, they have been on a downward trend. The 30-year bond, for example, exceeded 5.1 percent in October and is now at around 4.3 percent.
