Biden Exits Office with $711 Billion Deficit in Just 3 Months, as Trump’s New Treasury Secretary Confirmed Monday Faces Urgent Fiscal Crisis
On Monday, the U.S. Senate confirmed Scott Bessent, founder of Key Square Group, as the nation’s 79th Treasury Secretary.
The vote passed 68-29, with 16 Democrats joining Republicans in support of the Wall Street veteran.
Bessent will face pressing fiscal challenges, including tackling the nation’s growing debt and deficits. Other key issues on his agenda include Trump’s proposed tariffs and the future of expiring tax cuts.
Soaring Budget Deficit
The fiscal year for the federal government begins on Oct 1.
The U.S. budget deficit surged to a record high between October and December, according to Treasury Department data released on 14th January, driven by increased spending and a decline in tax revenue.
During the first three months of the government’s fiscal year, the deficit ballooned to $711 billion, marking a significant 39% jump from the $510 billion reported in the same period last year.
Besset will inherit Biden’s deficit and will need to work on fiscal stabilization as he tackles President Trump’s agenda.
Interest Payments Cause Spending Surge
Spending surged by 11% to a new record, while revenues declined slightly, according to the Treasury.
Outlays reached $1.8 trillion during the three-month period, a Treasury official reported. Key areas contributing to the increase included Medicare and Medicaid, along with defense programs, which saw higher operations and maintenance costs.
Additionally, Treasury expenditures rose by $33 billion, largely due to increased interest payments on the national debt.
The cost of servicing the country’s debt has climbed recently, driven by rising interest rates.
Rates Continue at Higher Levels Due to Inflation
The Federal Reserve cut rates by 100-basis points but has continued to maintain current levels due to inflation fears.
Spiraling inflation during the last four years had forced the Fed to raise rates which has now made the cost of servicing American debt more expensive.
Also the amount of debt has increased causing a greater pressure on the deficit.
Trump Calls for Lower Rates
U.S. President Donald Trump stated on Thursday that he wants the Federal Reserve to reduce interest rates, even as the central bank has paused rate changes for an indefinite period.
He claimed to have a better understanding of monetary policy than those responsible for setting it.
“With oil prices going down, I’ll demand that interest rates drop immediately, and likewise they should be dropping all over the world,” Trump told the World Economic Forum on 23rd January in Davos, Switzerland.
Yellen Expressed Concerned About Deficit
Outgoing Treasury Secretary Janet Yellen had expressed her unease over mounting deficits, urging immediate action to bring them under control.
Yellen said she is worried by President-elect Donald Trump’s proposed import tariffs, which she warns could increase inflation and costs for American households and businesses.
“I am concerned about fiscal sustainability, and I am sorry that we haven’t made more progress,” Yellen said. “I believe that the deficit needs to be brought down, especially now that we’re in an environment of higher interest rates.”
Ironically, during Janet Yellen’s tenure as Fed Chair and Vice Chair, U.S. debt surged by $8.2 trillion, and an additional $8.5 trillion accumulated while she served as Treasury Secretary.
Support for Gradual Tariffs Gains Relevance as Trump Threatens to Use Them For Leverage
The incoming Treasury secretary has long advocated for a gradual approach to tariffs, a stance that will now be in the spotlight as President Trump reignites tensions over international trade.
In a social media post on Sunday, Trump announced plans to impose a 25% tariff on goods imported from Colombia, which resulted in the Colombian government accepting American demands in a few hours.
The trade relations with China, Canada, and Mexico will soon be tested starting in February with increasing tariffs.
24% Increase in Deficit Compared to Last Year
A budget deficit occurs when money going out (spending) exceeds money coming in (revenue) during a defined period.
In FY 2024, the federal government spent $6.75 trillion and collected $4.92 trillion in revenue, resulting in a deficit.
The amount by which spending exceeds revenue, $1.83 trillion in 2024, is referred to as deficit spending.
U.S. Debt at All-Time High
As of September, the national debt stood at $35.46 trillion.
Just a year ago, the debt was around $30 trillion.
The U.S. national debt officially surpassed $34 trillion on January 4, as reported by the U.S. Department of the Treasury. Notably, it had reached $33 trillion on September 15, 2023, and $32 trillion on June 15, 2023, indicating an accelerated increase.
Prior to this, the ascent from $31 trillion to $32 trillion took approximately eight months.
In the last century, the U.S. federal debt has surged from $403 billion in 1923 to a staggering $33.17 trillion in 2023.
Fed Chairman Jerome Powell has said it is past time to have an “adult conversation about fiscal responsibility.”
What does this relentless rise mean for Americans and the future of the U.S. economy?
National Deficit Increasing
A deficit happens when the federal government spends more than it brings in.
In fiscal year (FY) 2024, the government has spent $1.90 trillion beyond its revenue, leading to a national deficit.
To finance government programs amidst a budget shortfall, the federal government accrues debt through the issuance of U.S. Treasury, bills, and securities. This national debt represents the total of borrowed funds plus the interest due to the investors who have bought these financial instruments.
Unsustainable Federal Debt Levels As Percentage of GDP
Assessing a nation’s debt in relation to its gross domestic product (GDP) provides insight into its capacity to settle the debt. This ratio is deemed a more informative gauge of a country’s fiscal health compared to the raw national debt figure, as it reflects the debt burden relative to the country’s overall economic output, indicating its repayment capability. The U.S. witnessed its debt-to-GDP ratio exceed 100% in 2013, with both debt and GDP hovering around 16.7 trillion.
The debt-to-GDP ratio is currently around 123%, and politicians are not showing any sign of slowing spending.
Federal Debt Held By The Public
Rising deficits lead to an increase in the already substantial federal debt held by the public, causing it to grow significantly over the next 30 years.
By 2054, the debt is projected to reach 166% of GDP, with expectations of continued growth beyond that.
Interest On Debt Unsustainable
The Treasury’s year-to-date interest costs for fiscal 2024 reached $1.049 trillion through August, marking an increase of approximately 30% compared to the same period in fiscal 2023.
Currently, interest spending is the 2nd largest outlay and it will surpass spending on Social Security by early 2025.
Raise Taxes Or Print Money
Higher debt must be financed with higher taxes or more money creation. Raising taxes might prove difficult, but the alternative of printing more money could result in rampant inflation.
Americans have suffered in the past four years as inflation has made everyday necessities more expensive. Although the pace of price increases has slowed, food and gas prices are still higher than in the past.
The December core inflation data was stickier than anticipated confirming the pain Americans are facing everyday.
Spending By Borrowing
So far, government spending has been financed by selling U.S. debt to foreign nations. America’s ability to pay its debt is a concern for nations worldwide, which own around $7.6 trillion of our debt.
Japan and China are the top two countries holding U.S. debt. Both countries have been reducing their holdings of U.S. Treasuries.
If the U.S. government can no longer find buyers for its $1.7 trillion annual debt, significant cuts must be imposed on social programs.
The CBO Report Unveils A Dire Path Ahead
The latest report released by the non-partisan Congressional Budget Office (CBO) for March 2024, offered dire projections for the country’s fiscal and economic landscape over the upcoming decade.
Critical trust funds face looming insolvency. The Highway Trust Fund is anticipated to exhaust its reserves by 2028, the Social Security retirement trust fund by 2033, and the Medicare Hospital Insurance trust fund is on track to deplete its funds by the mid-2030s.
Cuts to Social Programs
The insolvency of the trust funds would trigger automatic, across-the-board reductions in their payouts.
The CBO projects that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will run out of funds by 2033, coinciding with the moment when individuals currently aged 58 reach the official retirement age and the youngest of today’s retirees hit 71. Consequently, all recipients will experience an automatic 25 percent reduction in benefits, irrespective of their age or financial situation.
Urgent Need to Tackle National Debt
The U.S. National Debt is on track for a $2.8 trillion increase this year. This unprecedented growth, reaching historic highs, poses significant challenges, including a rising national deficit, an unsustainable debt-to-GDP ratio, and unmanageable interest costs.
The reliance on foreign nations for debt financing and the looming risks of a recession add urgency to address the dire projections.
Critical trust funds, such as Social Security and Medicare, are facing insolvency, emphasizing the need for immediate and comprehensive fiscal strategies to navigate the complex economic landscape ahead.
Yellen Wasn’t Worried About the $33 Trillion National Debt a Year Ago
Despite presiding over unprecedented debt surges during her tenure, the former Treasury Secretary Janet Yellen had downplayed concerns about the national debt, which approached $33 trillion in September 2023.
Yellen dismissed fears a year ago, claiming, “The statistic or metric that I look at most often… is net interest as a share of GDP,” which she described as still “reasonable” during a CNBC interview.
Critics argue that Yellen’s comments about Trump’s policies exemplifies partisan hypocrisy, minimizing today’s fiscal red flags despite overseeing trillions in debt accumulation during her career under the Biden administration.
Tough Challenge for President Trump
The Treasury report released two weeks ago indicating a record $711 billion deficit for first three months of fiscal 2025 indicates the challenge ahead.
The latest budget figures come as President-elect Donald Trump has vowed to slash federal spending.
Another key issue for Trump will be the Tax Cuts and Jobs Act — the major tax overhaul implemented in 2018.
Several provisions within the tax code are set to expire at the end of 2025, and Congress will need to take action to extend these tax cuts.
Also President Trump has promised additional tax cuts on Social Security, overtime income and tips which will have to be funded in some manner.
Related: Trump’s Second Term May Bring Unexpected Tax Changes — Here’s What You Need to Know
Bessent will have his hands full balancing the national debt and deficit while continuing to implement President Trump’s ambitious agenda of reducing taxes.
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Retirement Is Overrated: 10 Reasons Not To Retire
You might be thinking that retirement sounds excellent – but what if you can’t afford it? What if an unforeseen catastrophe occurs and you need money? The reality is that so many people are retiring later in life because they don’t have enough saved up or can’t afford to take the risk of quitting their job before they know how much money they’ll need each month. Retirees also face many challenges, from loneliness to boredom, but there are ways to combat these problems with the right lifestyle changes. We will discuss why retirement isn’t always as glamorous as it seems and how to avoid these pitfalls by pursuing your goals now!
Retirement Is Overrated: 10 Reasons Not To Retire
Discover the Top 10 U.S. Cities Where Renters’ Income Goes the Furthest
With housing affordability at an all-time low, many Americans are forced to rent. While certain cities offer a higher income potential, they also have higher living cost. For renters, the optimal solution often lies in finding a middle ground — achieving the perfect balance between income and expenses. Luckily, individuals in search of apartments can now make informed decisions by exploring the latest report on RentCafe.com, which identifies cities where they can maximize the value of their budget. Here are the top 10 cities where renters can stretch their dollars.
Discover the Top 10 U.S. Cities Where Renters’ Income Goes the Furthest
Comparing Retirement Ages: How Does the US Stack Up Against Other Countries?
Retirement age fluctuates across nations, influenced by diverse factors such as labor market dynamics, job types, economic policies, gender roles, and pension systems. For instance, Saudi Arabia stands out as the sole country offering full retirement benefits to individuals under 50, whereas in 2023, France faced uproar after raising its retirement age by two years, sparking widespread strikes. The Organization for Economic Co-operation and Development (OECD) collects and analyzes retirement data using distinct metrics: – The Current Retirement Age signifies the age at which individuals can retire with full pension benefits after a career starting at age 22, without facing any deductions. – The Effective Retirement Age represents the average age at which workers aged 40 or older exit the workforce, influenced by personal decisions or job availability.
Comparing Retirement Ages: How Does the US Stack Up Against Other Countries?
Avoid These Costly IRA Mistakes Before They Wreck Your Retirement
Individual Retirement Accounts (IRAs) are one of the most important tools for securing a financially stable retirement. With contribution limits for tax year 2024 set at $7,000 ($8,000 for those over 50), these accounts are accessible to most Americans for retirement planning. Yet, despite their relative simplicity, there are plenty of pitfalls investors face when managing their IRAs. Whether it’s choosing the wrong type of IRA, mishandling withdrawals, or misjudging tax implications, these mistakes can lead to unnecessary costs and missed opportunities. Here are some of the most common errors and how to avoid them.
Avoid These Costly IRA Mistakes Before They Wreck Your Retirement
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
