The United States budget deficit increased significantly in December 2024, reaching US$86.7 billion (A$139.95 billion).
As a result, the total deficit for the first three months of fiscal year 2025 has reached $710.9 billion. This represents an increase of 39.4% over last year.
Key Points
- December 2024 Deficit: $86.7 billion
- First Quarter Deficit: $710.9 billion (39.4% higher than last year)
- Rising Financing Costs: Interest payments are up 7%
- National Debt: Over $36 trillion
- Projected Financing Costs for 2025: $1.2 trillion (a record high).
In order to stimulate the economy, the government increased government spending on infrastructure and social programs. As a result of the slower economic growth, tax revenues have also decreased, contributing to the widening of the deficit. Also contributing to the increase were unexpected emergency expenditures in response to natural disasters.
The rising cost of financing national debt is a major factor contributing to the increased deficit.
A total of $308.4 billion was paid in interest on the debt in the first quarter of fiscal year 2025, an increase of 7% over the same period last year.
Increasing interest payments on the national debt can prevent the government from investing in other essential areas such as education, healthcare, and public services. Due to the increasing number of funds allocated to debt servicing, fewer funds are available for these essential programs, which could hinder long-term economic growth. It is possible that higher interest payments will lead to increased borrowing, further exacerbating the deficit and creating a potentially unsustainable fiscal situation.
As well, government expenditures during the first quarter increased by 11%, while tax receipts decreased by 2%.
The national debt has now reached $36 trillion. There is a projected total of $1.2 trillion in finance costs for the entire year, which would be a record.
National debt exceeding $36 trillion has significant consequences for the country's financial stability and economic future. Due to investors' perception of the risk associated with lending to an over-indebted country, it may result in increased borrowing costs. A high level of national debt may also undermine investor confidence, affecting a country's credit rating and devaluing its currency.
In spite of these challenges, the government has managed to keep short-term Treasury yields relatively stable, even as rates at the longer end of the maturity curve have surged.
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