The U.S. Government’s Building Fiscal Crisis
Government spending is going through the roof as the outgoing Biden-Harris administration cements its fiscal legacy of failure.
That’s not an understatement. Even U.S. Treasury Secretary Janet Yellen is apologizing for the administration’s sad fiscal performance. Here are her comments from the Wall Street Journal‘s CEO Summit on December 12, 2024:
WSJ: One not-so-great aspect of the legacy you and President Biden leave behind is a very large budget deficit, roughly 6% of GDP. Are you sorry you couldn’t make any progress on that, and how much of a risk does that pose to the economy?
YELLEN: I am concerned about fiscal sustainability, and I am sorry that we haven’t made more progress. I believe that the deficit needs to be brought down, especially now that we’re in an environment of higher interest rates. Over the past year, the interest cost of the debt has increased by several hundred billion. It’s one of the largest items responsible for the increase in the budget deficit, so we do need to bring it down.
One day earlier, the U.S. Treasury Department she runs reported the federal government is spending money far faster than ever as its fiscal year gets underway. The chart below shows how its rate of spending of the past two months compares to the previous two fiscal years:
The chart confirms revenue is not the problem. Tax collections during the first two months of FY 2025 have kept up with both FY 2023 and FY 2024 at this point of time. The amount of money the government collects in taxes is consistent across all these fiscal years. It is also worth noting that the federal government went on to collect a record amount of revenue in FY 2024.
Unrestrained Spending Growth is the Real Problem
The chart shows how much higher the U.S. government’s spending has been so far in FY 2025 compared to the previous two fiscal years. The Biden-Harris administration has somehow managed to cram the equivalent of three months of FY 2024’s spending into the first two months of FY 2025.
Going back to Janet Yellen’s remarks, she cites the rising interest cost of the U.S. government’s total public debt outstanding as a major problem. If you’re wondering why she is apologizing, it is because she is personally responsible for that problem. Her mismanagement of the nation’s debt has been called the “worst fiscal blunder in U.S. Treasury history.”
Worse, because spending is rising so fast, the national debt has surged during the first two months of FY 2025. Even with the Federal Reserve cutting interest rates, the federal government’s cost of interest on the money it has borrowed will surge in December. The Biden-Harris administration’s legacy of unrestrained spending growth is building toward a fiscal crisis for the U.S. government.
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