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United States

US government borrowing soars to highest level since recession, despite strong economy

The second-half borrowing estimate of US$769 billion is the highest since US$1.1 trillion in July-December 2008

PUBLISHED : Tuesday, 31 July, 2018, 10:29am
UPDATED : Tuesday, 31 July, 2018, 10:14pm

The Treasury Department predicted the US government’s borrowing needs in the second half of this year will jump to the most since the financial crisis a decade ago as the nation’s fiscal health deteriorates – despite a strong economy.

The department expects to issue US$329 billion in net marketable debt from July through September, the fourth-largest total for that quarter on record and higher than the US$273 billion estimated in April, Treasury said in a report Monday. The department’s forecast for the October-December quarter is US$440 billion, bringing the second-half borrowing estimate to US$769 billion, the highest since US$1.1 trillion in July-December 2008.

The estimates were “quite a bit higher than our expectations,” Thomas Simons, senior money-market economist at Jefferies LLC, said in a note.

The yield on US 10-year rates edged higher to almost 2.98 per cent following publication of the borrowing outlook, but remained within its daily trading range. The two-year rate was steady around 2.67 per cent, close to its low for the day.

The Treasury is boosting sales of bills, notes and bonds to help finance a budget gap that’s widening after US President Donald Trump signed US$1.5 trillion in tax cuts late last year and the Republican-controlled Congress approved a roughly US$300 billion spending increase.

The deficit totalled US$607 billion through the first nine months of the financial year that ends September 30, compared with US$523 billion from the same period a year earlier. The Congressional Budget Office in late June predicted total government spending would exceed revenue by US$1 trillion in 2020.

But administration officials say a stronger economy will boost government revenue and help shrink the budget deficit. Treasury Secretary Steven Mnuchin said Sunday the US economy is “well on the path” for four or five years of sustained annual growth of 3 per cent. Gross domestic product accelerated in the second quarter to the fastest pace since 2014, the government reported on Friday, allowing Trump to link the increase with his economic policies.

The second quarter may prove to be a high point for the world’s largest economy, though, and few economists expect it to attain the president’s goal of sustained growth of 3 per cent.

From April through June, the Treasury said it issued US$72 billion in net marketable debt, compared with its earlier prediction of US$75 billion in borrowing. The cash balance was US$333 billion at the end of June.

In Monday’s borrowing projections, the Treasury assumes a cash balance of US$350 billion on September 30 and US$390 billion at year end.

The quarterly estimates precede the department’s quarterly refunding announcement on Wednesday, when the sizes of government debt auctions are unveiled.

“The Treasury will need to announce another round of across-the-board increases on Wednesday – not that anyone had any doubt,” according to Lou Crandall, chief economist for Wrightson ICAP LLC.