May 9, 2024
Today at
15:32
A new update will show on Friday how impressively deep the hole in the American budget is. Interest expenditure in particular has been eye-catching in recent months.
On Friday at 2 p.m. local time, when Wall Street is mentally on the weekend, the monthly budget update will flop online in a corner of the US Treasury website. This happens exactly every eighth working day of the month, unless Congress, in its periodic pseudo-concern about the debt mountain, puts on some bad theater about the debt ceiling and the civil servants are forced to go on leave.
Despite all the theater, those officials will monthly treasury statement dry but clear, it shows how impressively deep the hole in the American budget is. For the first six months of the fiscal year to September, the US Treasury collected $2,188 billion and expenditures amounted to $3,253 billion. You don’t have to be a mathematician to calculate that the deficit at the halfway point was more than 1,000 billion.
Defense is down $433 billion over the first six months of the budget year after pensions (social security) and health care the most important item of expenditure. That figure is 6 percent more than a year earlier. Not really surprising, given the many flashpoints in the world.
Yet the flashpoints in Ukraine and the Middle East are not the most expensive wars the United States is struggling with. By far the most expensive is the war that Jerome Powell, the chairman of the US central bank, is waging against persistently high inflation. To put the genie back in the bottle, the Federal Reserve raised interest rates from almost 0 percent at the beginning of 2022 to 5.5 percent since last summer. And Powell shows no rush to cut rates again.
The result: for the first six months of the year, interest expenses amounted to $429 billion. That is a significant 42 percent more than over the same period in the previous budget year and almost as much as defense consumes. Over the last twelve months, Uncle Sam paid more than $800 billion in interest, doubling in two years (see graph).
According to the latest data from the US Treasury, of the almost 27,000 billion dollars in public debt, a substantial part – 6,400 billion or almost a quarter – is either short-term or variable. And so now with 5.4 percent interest, in line with the interest rate set by the Fed. Ergo: it’s not just Wall Street that is longing for that first interest rate cut. No pressure, Jerome.
