U.S. Treasury’s debt plan confirms worst fears of Trump’s ruinous fiscal spree

The US fiscal deficit is ballooning at an alarming pace as Donald Trump’s tax cuts eviscerate federal revenues, forcing Washington to borrow epic sums on the global bond market at an increasingly delicate juncture.

The US Treasury revealed this week that it expects to issue $769bn (£590bn) of new debt in the second half of the year, far higher than expected just months ago…

The US Treasury said the budget deficit this fiscal year will top $833bn. It is on track to blow through $1 trillion by 2020 – nearing 5.5pc of GDP – as the full effects of tax cuts combine with extra spending on infrastructure, pork barrel projects by Congress, and military rearmament…

The deficit should be near balance a full nine years into the ageing expansion. Public accounts are massively misaligned.

Willem Buiter from Citigroup said the sheer scale of debt issuance may ultimately cause global investors to question US solvency. “At some point people could start looking at the financial position and there could be fears of forced monetisation of the deficit,” he said.

The International Monetary Fund warns in its Fiscal Monitor that US government debt will reach 109.4pc of GDP in 2019, 111.3pc in 2020, and almost 117pc by 2023. This does not factor in a downturn, which is almost inevitable by then. Starting from the current base, a bad recession would send the deficit spiraling through 10pc of GDP.  

Hans Redeker from Morgan Stanley said the US is nearing a crunch point where foreign investors may start to demand an interest premium on US debt, pushing up borrowing costs and curbing appetite for the dollar. 

“The twin budget and current account deficits are heading for 8.5pc of GDP.  Who is going to fund this experiment? The world blanket of liquidity is shrinking, and will shrink further,” he said.