New Milestone: US$ 34 Trillion Debt
Posted on 01/03/2024
According to the U.S. Department of Treasury, in fiscal year 2023, the country spent US$ 6.13 trillion. It was roughly similar in FY 2022 and is likely to remain in the US$ 6 trillion range for the foreseeable future. Unfortunately, last year the government only collected US$ 4.44 trillion, mainly through income taxes. Thus revenue is not keeping up with spending, leading to predictable deficits. As a result the national debt has exploded to over US$ 34 trillion. However, on the bright side many investors expect the high level of government spending to add fuel to investment markets and help most types of assets catch a bid in the near term.
In terms of dealing with the debt, the solutions few. Reducing spending is not necessarily a politically viable option. Since most of the government’s outlays are “mandatory spending” they are unlikely to be reduced nominally. The word mandatory has a government definition: “Mandatory spending, also known as direct spending, is mandated by existing laws. This type of spending includes funding for entitlement programs like Medicare and Social Security and other payments to people, businesses, and state and local governments. For example, the Social Security Act requires the government to provide payments to beneficiaries based on the amount of money they’ve earned and other factors. Last amended in 2019, the Social Security Act will determine the level of federal spending into the future until it is amended again. Due to authorization laws, the funding for these programs must be allocated for spending each year, hence the term mandatory.”
The Federal Reserve has also taken on debt. In recent years it has been purchasing Treasuries and mortgage-backed securities, though a balance sheet reduction is occurring. The size of the Federal Reserve Balance sheet is US$ 8 trillion. In 2007, it was less that US$ 1 trillion.
House Speaker Mike Johnson seeks to create a bipartisan debt commission to tackle what he termed “the greatest threat to our national security.”
