Third Highest Deficit Ever
As the United States debt load closes in on $20.0 trillion, some analysts had taken hope from the fact that deficits had been shrinking since 2011. That is, they kept shrinking until now.
The fiscal year that ended on September 30 saw an uptick in the budget deficit, from $439.0 billion to $587.0 billion. Analysts attribute the 34% increase to substandard revenues and more government spending. As a result, the total debt load hit a new record of $19.6 trillion.
Total debt is the aggregate amount of money the U.S. government owes to various investors around the world. It is often confused with deficit, which is a related, but distinct, concept. (Source: “U.S. Budget Deficit Rose in Fiscal Year 2016, First Time in Five Years,” The Wall Street Journal, October 14, 2016.)
Deficit represents a shortfall in the yearly balancing of government revenues and expenditures. For instance, if the government spends more on the military, social security, or things other than what it brings in through taxes, the budget is in “deficit.”
The reverse is also possible. If the government raises more money through taxes than it spends, the budget is known to be in “surplus.” The last time this happened was in the late 1990s.
Over time, deficits are what feed the total amount of debt. So it was considered a positive step that deficits continued to fall every year since 2011. In fact, the budget deficit in 2015 was the lowest in the entire post-crisis era. But that trend was broken this year.
As a portion of the economy, the deficit rose from 2.5% to 3.2%. That sounds alarming, except it is roughly equal to the average deficit run by the U.S. government across the last 40 years.
Yet it is the first time the deficit has risen as a share of the economy since 2009. Many analysts think the causes are specifically related to long-term demographic trends in the country, which show a growing number of seniors drawing on Medicare, Medicaid, and Social Security.
The deficit could continue to widen as outlays to those programs increase.
Another potential factor was the Federal Reserve’s rate hike from late last year. By boosting the federal funds rate by 0.25% in December 2015, the central bank effectively raised the cost of borrowing for all debtors—including the U.S. government