The problem keeps growing

Government spending in the U.S. continues to be a problem. For the month of August, the U.S. just published an astonishing $345Bn budget deficit, and that’s including the revenues from tariffs, around $29Bn. The expectation for the deficit was $305Bn. That means the treasury will need to issue $350bn in additional debt, likely treasury bills, to cover this gap versus revenues. The plan seems to be issuing short term debt (T-bills) to lower interest rate costs once the Fed cuts rates, which will lower the deficit. The numbers are simple: for every 25 bps the Fed lowers official rates, the impact on interest expense on the current $6.4Tn in bills will be $16Bn a year, which will not fix the problem on a long term basis, but will take pressure off the table short term, and will allow Secretary Bessent to come up with more innovative ideas to handle the financing of the deficit and get additional revenues. Without reducing government spending, inflation will go up, and it swill have a negative impact on long term interest rates. That’s why government officials are talking about FNMA and FRE IPO, and the revaluation of gold reserves. They need to come up with trillions, not billions, to easy the country’s aches. But until the spending problem is tackled, all potential solutions will be futile.

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