Treasury Runs Second Largest July Deficit of All Time

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by Peter Schiff, Schiff Gold:

The Federal Government ran a $211B deficit in July. Except for February, this was the largest deficit since last July when the Treasury ran a deficit of $302B, and it was the second-largest July deficit ever.

Figure: 1 Monthly Federal Budget

Looking historically, this is the second largest July deficit ever recorded behind last July. In July 2018 and 2019, the last normal years before Covid, the Treasury ran a deficit of $76B and $120B respectively. This July was nearly three times larger than July 2018.

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Figure: 2 Historical Deficit/Surplus for July

The historical average for July is $118B, which makes this July 79% above average.

Figure: 3 Current vs Historical

The Sankey diagram below shows the distribution of spending and revenue. The Deficit represented 44% of spending in the most recent month.

Figure: 4 Monthly Federal Budget Sankey

The monthly figure was significantly larger than the TTM deficit which only represented 16.55% of total spending, or $958B.

Figure: 5 TTM Federal Budget Sankey

Total revenue was the smallest since August of last year. This was due to a big fall in Individual Taxes and a drop in Corporate Taxes which is much more volatile from month to month.

The drop in Individual Taxes is something to note. In recent months, Individual taxes have been way above normal. The surge in revenues has helped offset much larger expenditures and help contain the deficit. The Treasury does not provide detail on revenue beyond the high-level categories, so it’s impossible to know the detailed source.

recent report by the CBO highlighted the government provisions that drove the revenue surge along with deferred tax payments and the growing stock market. The surge was not expected to last and may have already come to an end.

Figure: 6 Monthly Receipts

The Expense side was below four of the last five months. This was mainly due to a fall in Income Security.

Figure: 7 Monthly Outlays

Perhaps the most important expense to take note of is Interest Expense. As explained in the debt analysis, interest costs have been soaring lately. Last July, TTM interest expense was $351B. That figure now stands at $445B or 26.7% higher.

Even more discouraging is that this barely includes the combined 150bps rate hikes in June and July. As these rates start to roll into the debt, interest costs will only increase. This will become a major headwind for the Treasury as annual interest cost looks set to exceed $500B before in short order.

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