Washington increases spending on the pandemic, while tax revenues are falling, according to MarketWatch.
The numbers: the budget deficit of the Federal government in June rose to $864 billion, breaking the monthly record. This happened after the US government gave huge sums of money to try to help small businesses and unemployed Americans in a pandemic coronavirus.
The increase last month raised the budget deficit in the current fiscal year to total $2.7 trillion, compared with $747 billion in the same nine-month period last year, according to the Department of Treasury of the United States Monday, July 13. The government is working with the annual budget, which is valid from October 1 to September 30, instead of using concepts of the calendar year, more common in the business world.
The United States intends to register a record deficit of $3.7 trillion in fiscal year 2020 due to the unprecedented efforts to support the economy. Last year the budget deficit amounted to almost $1 trillion.
The last time the U.S. experienced such a huge deficit, measured in percent, during the Second world war.
What happened: in June, Washington has spent $1,11 trillion versus $572 billion in may. In the same month a year ago, the cost was much less, $342 billion.
A large part of the increase in spending last month was associated with a plan Paycheck Protection Plan, an assistance package for small businesses designed to provide non-refundable loans to companies which employ workers on the payroll.
Unemployment benefits amounted to a whopping $116 billion, including $80.4 billion paid by the Federal government.
Millions of self-employed people, who have never had the right to claim unemployment benefits, got that right and the Federal government also pay weekly $600 in the form of “coronavirus” benefits. This bonus will stop paying at the end of July and is unlikely to continue, at least for the same amount.
A year earlier, the States and the Federal government has spent in June, $2 billion for unemployment benefits because the unemployment rate reached a 50-year low of 3.5%. Now the unemployment rate officially stands at 11.1%, although most economists believe that in reality it is several points higher.
At the same time tax and other revenues in June amounted to only $241 billion a Year earlier, the government received $333 billion.
Tax revenues decreased due to the extended deadline of tax payment from April to July, along with a depressed economy.
Overview: Washington has already sent huge amounts of money on direct payments to households, extended unemployment benefits, loans to small businesses and industries that are considered critical, such as airlines. Congress can also add more than $1 trillion in additional emergency measures to the end of the summer.
Most likely, the economy will take a big help, at least until the end of the year, when tax revenues fall, and many people and companies will still need support.
Market reaction: yields on 10-year Treasury bonds amounted to TMUBMUSD10Y 0,609%. The Dow Jones Industrial Average rose 1.08 percent, while the S & P 500 fell 0.41% (according to 12:30 am ET, July 14).