Will the deficit and the national debt become a campaign issue? Neither candidate has addressed the issue even though it is likely it could become something of significance in the intermediate future.
It should be noted that a dated Gallup Poll (April) indicated that 40% of people aged 18-35 believe that fiscal issues are the greatest threat facing the country.
The nonpartisan Congressional Budget Office increased its estimate for this year’s budget deficit to almost $2 trillion, sounding a fresh alarm about a unprecedented trajectory for federal borrowing.
The CBO sees the deficit reaching $1.92 trillion in 2024, up from $1.69 trillion in 2023. The new estimate is more than $400 billion larger than what the CBO projected in February and in part reflects additional spending including aid for Ukraine and student loan relief measure as well as increased interest expense.
The CBO is now projecting interest expense to exceed $1.02 trillion next year, exceeding all other line items in the budget.
This is the second such significant upward revision of the year.
The CBO states it is not a revenue issue as revenues are at a record on both the aggregate and percentage basis of the GDP. It is a spending issue.
The CBO significatively revised up projections for federal spending. Outlays are now expected to hit 24.2% of GDP this year and average 24% over the next decade.
For perspective, consider that spending before the pandemic exceeded 24% only once since WWII—in 2009 amid the financial panic and the stimulus binge of that era.
At some juncture in the future the bond market may realize the deficit and reckless fiscal policy is an issue. As noted neither candidate has addressed the potential pending crisis and each candidate has different spending and revenue priorities.
Reiterating it is not about revenues but is about spending.
Today is a $5.5 trillion triple witching hour. Will volatility increase? Yesterday was the inverse of days past as the NASDAQ declined about 0.75% and the Dow rose about 0.79%. Treasuries decline nominally in price.
Last night the foreign markets were down. London was down 0.57%, Paris down 0.49% and Frankfurt down 0.50%. China was down 0.29%, Japan down 0.09% and Hang Seng down 1.67%.
Futures are flat following a nominal selloff in the overnight markets, the result of political angst and concerns the economies might be slowing to fast. The 10-year is up 3/32 to yield 4.24%.
