AFP, Feb. 13 (Editor: Malan) The Biden administration's results are still being settled one after another. According to the US Treasury Department's announcement on Wednesday, the US government deficit increased by 129 billion US dollars in January, driving the federal budget gap in the first four months of this fiscal year to a record 840 billion US dollars.

This deficit was mainly affected by increased spending in areas such as health care, social security, veterans' transfers, and interest payments on debt. US federal government spending increased by 143 billion US dollars in January compared to the same period last year, reaching 642 billion US dollars, an increase of 29%.

On the other hand, US federal revenue also increased in January compared to the same period, but the increase was only 8% to $513 billion. Treasury officials pointed out that there are currently no plans to cover the impact of the Musk Administration Efficiency Department's actions in the monthly financial statements. The latter slogan is to cut federal spending to save money.

The Treasury's financial reports released so far are basically Biden's “political legacy.” The Trump administration only officially took over the US on January 20, and the changes brought about by its actions will not be reflected until February.

Although the January report is a summary of the Biden administration, it highlights the pressure that the new US Treasury Secretary Scott Bessent (Scott Bessent) faces in the future. Bezent promised to limit the federal deficit to 3% of total GDP, compared to 6.4% the previous year. Moreover, the widening deficit is likely to reinforce the determination of congressional Republican budget hawks to cut.

Intensifying austerity

The US revenue for the current fiscal year did not change much compared to last year, but the deficit widened 25% from last year. The main reason for this is reported to be an unexpected increase in revenue during the same period last year. Due to the natural disaster in 2023, a large amount of tax was delayed until the first few months of fiscal year 2024.

Officials say that if this effect is excluded, the deficit so far this fiscal year has actually increased by 10%.

Looking at the details, since this fiscal year, the US federal government's military spending has increased 13% to 318 billion US dollars; due to the hurricane and California wildfires, the US Department of Homeland Security's expenditure has increased by 43%; social security spending has increased 8%, but it is the largest single expenditure of the US federal government in terms of total size, reaching a total of 529 billion US dollars.

In addition to this, since the US still has high interest rates, the pressure on the US Treasury to repay its debts is enormous. Since the current fiscal year, the US federal government has accumulated interest costs of 392 billion US dollars, which is equivalent to 16% of total expenditure. Interest expenses alone reached $322 billion, showing the Ministry of Finance's heavy burden on interest expenses.

These data, along with the latest CPI report released by the US, may further raise concerns in the market. A higher deficit could be seen as a negative sign for the dollar, and limit the US fiscal policy space, and push the US government to curb unnecessary spending while increasing revenue.

In terms of liquidity, the contraction of the US government and the further weakening of the possibility that the Federal Reserve will cut interest rates will jointly lead to an austerity trend, which will affect the prices of assets such as US stocks, cryptocurrencies, and gold.

Edit/danial