US Federal Budget Deficit Soars : The Impact of Debt, Spending, and Global Shifts
The new US fiscal year has started, and the federal budget deficit has already surged by 287%, reaching $257 billion in October—an increase from $67 billion in October 2023, according to the US Treasury. This significant rise in the deficit is the largest since 2020 and is attributed to several key factors : a sharp decline in revenues (down $77 billion, or 19%), rising expenditures (up $114 billion, or 24%, largely due to military spending, Social Security, and Medicare), and various “one-off” expenses.
In annual terms, the deficit for 2024 is projected to reach $1.8 trillion, up from $1.7 trillion in 2023. This figure includes over $1 trillion in interest payments on the US’s massive $36 trillion debt, which is now the largest expense after Social Security and accounts for more than half of total expenditures.
The growing deficit has sparked discussions about fiscal reform, with Trump’s newly established Department of Government Efficiency pledging to reduce spending, bureaucracy, and regulations. However, the effectiveness of this initiative remains uncertain.
The US has run budget deficits in all but 12 years since World War II, with significant spikes in spending during the Reagan and Bush administrations, largely due to defense spending and foreign wars, as well as during the post-2008 Great Recession, COVID-19 bailouts, and Biden’s multi-trillion-dollar infrastructure plans.
The ability of the US to continue such high levels of spending without facing inflationary consequences has been largely due to the dollar’s status as the global reserve currency, allowing the country to borrow and print money with less immediate economic fallout than other nations. However, with rising global moves to reduce dependence on the dollar and declining US manufacturing, the risks of the US’s economic power diminishing, especially as China continues to rise, are increasingly becoming a concern.
