With still no end to the pandemic in sight, the US budget deficit ballooned to a record $864 billion this June. This helped bring up the total deficit for the current fiscal year to $2.7 trillion dollars. The previous record occurred last April at $738 billion. In contrast, the total deficit for fiscal year 2019 amounted to $984 billion.
Other News: Unemployment Rate Declines to 11.1%
US Budget Deficit in June
US Budget Deficit Hits All-Time Monthly High of $864 Billion
If the pattern continues, the US is on track to its highest deficit ever at $3.7 trillion. Previous high was $1.4 trillion in 2009, when the government spent big money to rescue the US from recession. The deficit will also depend on when the virus gets contained and a vaccine developed. If both happen later than sooner, the deficit may grow even bigger.
A bulk of June’s expenses focused on programs to help prop up the economy during the current pandemic. So far, the coronavirus effect is showing no signs of slowing down. Currently, the country has surpassed 60,000 new cases daily and may be on track for 100,000. A brief spark of economic recovery last May has faded into memory as new cases keep rising. Instead of reopening the economy even more, many states have put their plans on hold.
Stimulus Programs Top Spending for June
Chief among the contributors to the budget deficit is the Paycheck Protection Program. PPP provided small businesses with forgivable loans as long as some of the money goes to payroll. Additionally, laid-off workers received unemployment insurance worth $600/week. Earlier, the government also distributed stimulus checks, unemployment insurance and widened eligibility. Workers earning $75,000/year or less were recipients to a $1,200 stimulus check in April.
At the same time, the government moved the deadline for filing of taxes to July 15. This meant less tax money flowed in the previous months. As of June, revenues totaled $2.26 trillion, which is 13.4% lower compared to last year. Spending totaled $5 trillion, which is almost 50% of the previous year. Meanwhile, 21 million jobs disappeared in March and April, and only 7.5 million returned last May and June. This confluence of events has pushed the deficit into the highest ever for the nation.
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Despite the slowdown in economic activity nationwide, more spending is in the works. Upon resumption later this month, Congress will hammer out details of a new stimulus plan. The Trump White House has already indicated support for a new round of stimulus checks. Democrats have pushed to continue unemployment bonuses, as fewer jobs are currently available.
Republicans argued that unemployment bonuses disincentives workers from going back to their jobs. A recent study reported that two-thirds of beneficiaries might be receiving more money from unemployment than their old jobs. In 20% of recipients, the unemployment money proved to be twice as large as their former salary.
For the next round, Republicans are pushing to limit stimulus checks to those earning $40,000/year or less. If adopted, this removes 20 million middle-class Americans from the list.
Various estimates for the total cost for the new stimulus package range from $1.5 trillion to $3.5 trillion. Given Congress’s schedule, the stimulus package may fall under the 2021 budget instead.
Fed to spend $3 trillion to prop market f
The Federal Reserve also saw its balance sheet rise from $4.,2 trillion in February to $7 trillion at present. With the Fed pledging to do everything to keep the market afloat, investors are going wild.
Currently, the Fed avoids stocks and focuses on US treasuries and mortgage-backed securities. Its near-zero interest rates made stock trading attractive to bargain hunters. Andrew Brenner of NatAlliance observed the inverse relationship of coronavirus to the markets. “The worse that COVID-19 gets, the better the markets do because the Fed will bring in stimulus. That is what has been driving markets.”
The Fed’s increased bond activities encouraged credit activities among companies. The second quarter of 2020 became the busiest for debt issuance. Around $1.2 trillion worth of investment grade paper changed hands.
Last April, Federal Reserve Chairman Jerome Powell pledged the agency’s full support. He promised that the Fed will be utilizing lending powers reserved for emergencies. Powell stated that “We will continue to use these powers, forcefully, proactively, and aggressively until we are confident we are solidly on the road to recovery.”
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