Category Archives: Government debt

13/8/20: Federal Deficit Keeps Climbing in July


Federal fiscal position for July has been published ( and the numbers are interesting. Remember, this year, July was personal income tax filing month, as opposed to the usual April. So, over April and July 2020, total Federal receipts were at USD 805.350 billion, which is up on USD 786.893 billion in April and July 2019. Sounds good and it improved significantly monthly contribution to the annual deficit, with Federal deficit in July coming in at USD62.99 billion, or USD223.3 billion worse than April 2019 (which registered a surplus). 

So here is where we stand:

Average cumulative per-term Federal deficit for Obama Administration was USD 3.523 trillion. The same for President Trump's tenure to-date (not yet a full term) is USD 5.078 trillion. Of this, USD 1.889 trillion. Hence, ex-COVID, President Trump's first term deficit currently is running at USD 3.190 trillion. There are still 3 months of the Federal Fiscal Year running and 5 months of the calendar year left. If we are to assume that Federal deficits in August-December were to remain on the levels of 2019 (stripping out effects of COVID19 pandemic), President Trump will end his last year in office with a cumulated per-term deficit of around USD 3.664 trillion, which is - and remember, this is excluding COVID19 effects - a higher deficit than accumulated, on average, across two terms of the Obama Administration. 

Now, back to those charts above: COVID19 related increases in deficits have been staggering. So far, from April 1, through July, these amount to around USD1.89 trillion. Non-COVID deficits have been equally staggering. 

Here is an interesting thing: while public health took out USD624 billion in 2020 from January through July, Pentagon took USD608 billion. Who is handling the pandemic in the U.S. is quite not as clear as who is spending the money like the proverbial drunken sailors.

Another interesting thing: net interest payouts by the Federal Government. These are defined as "Net interest consists of interest paid on Treasury securities and other interest that the government pays (for example, interest paid on late refunds issued by the Internal Revenue Service) minus the interest that it collects from various sources..." ( Which means there are lags in Fed remitting interest payments, but much of that is already in the numbers. So far, the U.S. has managed to rake in USD 309 billion worth of net interest expenditures in the FY2020. 

14/12/19: Governance and Government Debt

What I am reading this week: a new paper via EFMA, titled "Governance and Government Debt" by João Imaginário and Maria João Guedes, available here:

The paper looks at "the relationship between Worldwide Governance Indicators [a proxy for governance quality] and Government Debt in 164 countries for the period between 2002 and 2015." Using fixed effects (FE) and generalized method of moments (GMM) models the authors show that "governance quality is negatively and statistically related with government debt. For Low Income countries was found evidence that better governance environment is associated with lower public debt levels."

More specifically, "for a set of 164 countries on a period between 2002 and 2015, ... estimation results for FE model suggest that Control of Corruption (CC) and Voice and Accountability (VA) indexes are negative and statistically significant on influencing government debt. In part, this result confirms our Hypothesis 1 that better governance quality is associated with lower levels of public
debt." But the study also shows that these 'global' effects are predominantly driven by the presence of low income countries in the full sample. The authors find that "the link between good governance quality and government debt reduction is more evident for Low Income countries."

As a caveat, the authors do find that overall higher score in the World Governance Indicators Index (as opposed to specific sub scores) has a negative and statistically significant impact on the levels of government debt, so that overall higher measure of governance quality is associated with lower government debt for the High Income economies. The magnitude of this effect was reasonably large, as well.

16/10/2019:Corporate Bond Markets are Primed for a Blowout

My this week's column for The Currency is covering the build up of systemic risks in the global corporate bond markets:

Synopsis: "Individual firms can be sensitive to the periodic repricing of risk by the investors. But collectively, the entire global corporate bond market is sitting on a powder keg of ultra-low government bond yields, with a risk-off fuse lit by the strengthening worries about global economic growth prospects. Currently, over USD 16 trillion worth of government bonds are traded at negative yields. This implies that in the longer run, market pricing is forcing accumulation of significant losses on balance sheets of all institutional investors holding government securities. Even a small correction in these markets can trigger investors to start offloading higher-risk corporate debt to pre-empt contagion from sovereign bonds markets and liquidate liquidity risk exposures."

2/9/19: One view of Austerity

A picture is worth a thousand words, some say. So here is a picture of austerity we've had (allegedly) in recent decades:

Source: @Soberlook 

The things are savage: debt is up from ca 70% to over 110%. Cost of debt carry is down from just under 4% to under 1.75%. So where are all those fabled public investments? And who has benefited from this massive increase in debt? Virtually all - financialized (a nice euphemism for being absorbed into financial assets valuations). Austerity, after all, is just the old-fashioned transfer of resources from the broader economy to the select few, made more palatable by the superficially low cost of borrowing.