With a new year upon us, it’s time to take a hard look at your budget and plan out your spending. No, not you, dear reader—we’re talking to the US government.
The government's fiscal year runs from October 1 to September 30, so the first fiscal quarter of 2025 ended on December 31, 2024. That’s why the Treasury Department just announced the budget deficit for the first quarter—and boy oh boy, it’s bad.
Over the last three months, the US spent $710,944,000,000 more than it earned. That’s a 39.4% increase from the $510 billion the government overspent during the same period in fiscal 2024.
The government hit a deficit of $87 billion in December, above expectations of $80 billion. The crazy part: That’s a 33% decline from the same month last year, and way better than the $367 billion deficit in November, or the $257 billion deficit in October. When you put it that way, it almost makes the government look fiscally responsible.
The very big number
Last year, the deficit increased by $1.8 trillion, bringing the total national debt to $36,169,520,000,045.
As of now, there’s no signs of the mounting debt pile diminishing anytime soon. The deficit accounted for over 6% of US GDP in 2024, and President-elect Trump has endorsed new tax cuts that could push the deficit closer to 7%, or even as high as 9%, according to economists. The Congressional Budget Office reports that, if Trump’s 2017 tax cuts are kept in place for 10 years as the president-elect has promised, it could add another $4.6 trillion to the deficit.
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But it’s not as though the government is unaware of this issue. Scott Bessent, Trump’s nominee for Treasury secretary, has vowed to halve the deficit to 3% of GDP by 2028.
Interesting stuff
Here’s the real problem: Interest payments on the national debt have already hit $308.4 billion in fiscal 2025, and we’re only three months in. That’s up 7% from the same period last year when the government spent $288 billion on interest payments, and makes interest payments the US government’s fourth-largest expense after Social Security, national defense, and healthcare.
The costs of financing the national debt are now expected to rise above $1.2 trillion for the full year—and while individual investors may not think that an entire country’s debt will hurt their portfolios, it can have knock-on effects.
A government spending money to pay off its debt isn’t spending money on economic growth that could otherwise benefit investors. The government may eventually have to raise taxes to pay the debt, cutting into investor profits. Worst of all, if the Treasury Department is forced to increase the size of its debt auctions to raise more money for the US government, that could spike bond yields—making them more attractive to investors than stocks and spurring on an equity market selloff, just like we’ve seen happen in the last few days.
A debt of this size needs to be paid off eventually—and it may be investors who ultimately pay the price.—MR