Amazing what important financial news can get pushed off the front page these days.
On Monday the drop of even more U.S. indexes into correction territory and reports that the White House was teeing up new tariffs on another $250 billion in Chinese goods pushed truly stunning news from the U.S. Treasury out of mind.
But on Monday the U.S. Treasury Department said government borrowing this year will more than double from 2017 to $1.34 trillion. The Treasury expects to issue $425 billion in net marketable debt from October through December. That’s lower than the $440 billion estimated in July, but up from the $353 billion in issuance in the quarter from July through September.
Borrowing this year will be the highest since 2010 when the country has emerging from recession.
The higher issuance is required to fund a growing budget gap resulting from the $1.5 trillion in tax cuts passed by Congress in December and a budget deal that increased spending by about $300 billion. The Federal budget deficit grew to a six-year high of $779 billion in the 2018 fiscal year that ended on September 30. The Congressional Budget Office forecasts that government spending will outpace government revenue by $973 billion in the next fiscal year (fiscal 2019) and by more than $1 trillion in fiscal 2020, the 12-month period that ends on September 30, 2020.
All this is taking place while the Federal Reserve is shrinking its balance sheet and buying fewer Treasuries.
I don’t see any good news here for U.S. interest rates or the U.S. dollar.
Things could get really “interesting” in a very negative kind of way if the global economy stabilized to a degree that decreased the flow of cash into what is currently perceived as the safe haven of dollar-denominated assets.
