Biden Leaves Trump With National Debt

Irresponsible fiscal policy and living in debt have become synonymous with the US economic success – in the first two months of the fiscal year (October and November), the US budget deficit rose to record levels.

The numbers show that the US is clearly heading towards a debt crisis on its current fiscal path. Of course, it is not yet clear when the most acute period of the debt crisis will begin. It is unlikely that even President Donald Trump, who will take office in January, and Elon Musk, who will head the Ministry of Government Efficiency, will be able to save the situation.

The 2025 fiscal year for the US government began on October 1. According to data released yesterday by the US Treasury Department, the government spent $589 billion in November, which is 14 percent more than the same month a year ago. Also, spending in November has never been so high, not even during the coronavirus crisis.

The government spent a total of $470 billion in October, up 16 percent from the same time last year. Spending also hit a record high in October.

The main increases in spending in the first two months were related to health care, defense, and social security. Of particular note was the $50 billion increase in spending on the health insurance program Medicare in November.

While spending is rising, revenues have not caught up. In October, the US government’s revenue for the last six months was at the same level as it was three years ago.

Growing Deficit

In the first two months, the US government’s spending has been $1.06 trillion, while its revenue has been just $678 billion. So the total deficit for the two months was $380.6 billion.

The largest source of revenue in the first two months was personal income tax

However, the largest expenditures were made on social security, defense, and interest payments on the national debt. Interest payments on the national debt have been higher than healthcare costs in the current fiscal year.

The weighted average interest rate on the entire national debt was 3.3 percent in November, a three-month decline. However, the interest rate on the national debt rose to a 15-year high in the summer. Compared to the lows of 2021 (1.5 percent), the interest rate on the national debt has more than doubled.

With market interest rates currently above 3.3 percent across all maturities (from 1 month to 30 years), the US government will have to refinance most of its old loans and borrow new ones from the market at higher interest rates. Essentially, this means that the interest paid on the national debt will continue to rise.

If markets start demanding interest rates similar to those of the early 2000s, we will probably see interest payments become the largest source of expenditure for the US government. In this case, annual interest payments would rise to between $2 and $2.5 trillion, already accounting for about 50% of government revenue. You don’t have to be an economist to understand that such a situation would mean a massive debt crisis in the country that issues the world’s reserve currency.

Will Trump Change the Situation?

The increase in spending in the fall can be partly attributed to the presidential election, as higher spending helps win over more voters. But as we know, the Democrats lost the election.

In addition, Joe Biden, who has been in office as president for the past month, has made the US financial situation very difficult.

Donald Trump, who takes office in January, created a new department to curb government spending – the Department of Government Efficiency (DOGE), which will be led by Tesla and SpaceX founder Elon Musk. The latter has said that their plan is to cut spending by $2 trillion.

However, if you look at the US government’s spending, it is very difficult to see where the cuts will come from. The government has taken on enormous responsibilities with health insurance and social programs, and such a large spending cut requires the termination or very extensive curtailment of these programs.

Some think it is unlikely that Trump or Musk will be able to prevent a future US government debt crisis. The volume of the national debt and interest payments have simply risen so high.