US Nat’l Debt Exceeds $21t

The US national debt exceeded $21 trillion for the first time on Thursday, a little more than six months after it hit first $20 trillion on Sept. 8. The national debt was $21.031 trillion on Thursday. The government releases total debt figures each business day, but it lags by one day.

Federal borrowing has been on the rise again since February, when congress passed legislation to suspend the debt ceiling. That move allowed the government to borrow as much as it needs to fund the activities approved by congress, news outlets reported.

Under the law passed in February, the government will not face any borrowing limit until March 1, 2019. At its current pace, the government is on track to add at least $1 trillion to the national debt by then. For example, the debt grew by more than half a trillion dollars in the six weeks since the debt ceiling was lifted on Feb. 9.

A large part of the national debt reflects the federal budget deficit, or the amount of spending above the revenues collected by the government. But the debt is rising faster than the amount of the budget deficit, as it also reflects things like federal lending for student loans and mortgage programs.

Peter G. Peterson Foundation President Michael Peterson said the milemarker is just the beginning, as congress has just agreed to spend even more.

"Our national debt reached a staggering $21 trillion today, having grown by $1 trillion in just the past six months," he said. "Worse yet, this unfortunate milestone has only just begun to include the effects of the recent fiscally irresponsible tax and spending legislation, which added more debt on top of an already unsustainable trajectory."

Deficits Worsen

Economists are expecting the US to run wider budget deficits due to the tax cut President Donald Trump signed into law in December. The government had a monthly deficit of $215 billion in February, up 12% from the same month last year due to lower revenue and higher spending.

Well into 2018, a few FX traders are still struggling to understand the underlying bearish trend of the US dollar, writes Gary Dorsch at Global Money Trends. How can it be that US yields are rising sharply, yet the US dollar is so weak at the same time?

The answer is simple: the US dollar is not going down despite higher yields, but because of them. Higher yields mean lower bond prices and US bonds are lower because foreign based investors don't want to buy them. This is an entirely different paradigm to previous years, BullionVault reported.

Today, the US dollar's weakness is linked to the renewed focus on the US's twin deficits (the sum of its budget and trade deficits), with the US's budget deficit set to deteriorate dramatically in years ahead. The mirror image to all of this is that the trade flow picture into Emerging Asia, Europe, Latin America, Russia, and Japan has been improving over the past year.

The US Congress's bipartisan vote last month to increase spending by nearly $300 billion over the next two years comes on the heels of the $1.5 trillion, 10-year tax cut President Donald Trump signed into law in December.

As a result, Wall Street strategists have slated over $1 trillion in new debt issuance this year alone to fund them. That's only expected to grow as an aging population further fuels entitlement outlays while rising interest rates buoy Washington's debt-servicing costs.

The White House's 2019 budget proposal released last month would raise the deficit to $984 billion, nearly double projections from last year. To keep pace with this rising shortfall, net treasury issuance to the public will average $1.27 trillion per year over the next five years, according to strategists at BMO Capital Markets. That compares to an average of $658 billion over the past five years.

Competition From China

Since China's entry into the World Trade Organization in 2001 it has become the most formidable economic competitor the United States had even seen. With multi-national companies confident the United States could no longer threaten punitive tariffs on China, investment soared, and exports followed.

Between 2001 and 2015, the annual US trade deficit in goods with China quadrupled from $83 billion to $375 billion. In the 2000s, some 6 million manufacturing jobs disappeared, in part due to growing import competition from China.

Trump claims the trade deficit is a result of bad trade deals. For all of 2017, the US racked up a trade shortfall in goods and services with its global trading partners of $568 billion, a 12% jump from the prior year and the widest annual gap since 2008. That's a major embarrassment for Trump. The trade deficit with China hit a record high of $375 billion in 2017, defying  Trump's repeated promises to shrink a number that he regards as a test of whether other nations are treating the United States fairly.

Dollar Is Bleeding

Meanwhile, the dollar is bleeding red ink. Tax receipts into the US Treasury in the first five months of the current fiscal year, from October thru February, were $1.286 trillion while outlays were $1.677 trillion. Receipts are growing +4% per year, on average, while outlays are rising +7%, on average. Also troubling was the jump in interest on the public debt, which in the month of February jumped to $28.4 billion, up +10.6% from last February and the most for any February on record.

In the first five months of this fiscal year, the interest cost of servicing the US debt soared to $203 billion, up +8% compared with a year ago, and the most on record for any Oct-Feb period. The sharp increase comes as the US public debt has crossed $21 trillion. And with the effective interest rate now rising with every passing month, it is virtually assured that this number will keep rising for the months ahead.