Latest news with #Congressional Budget Office
Daily Mail
3 days ago
- Business
- Daily Mail
Wall Street veteran who predicted 2008 meltdown issues urgent warning of 'economic heart attack' for US
Billionaire hedge fund titan Ray Dalio, who famously predicted the 2008 financial crash, has sounded a stark alarm over America's spiraling debt. Dalio warned that without swift action to slash the federal deficit, the US could face an 'economic heart attack' in the next three years. 'If the US doesn't cut the deficit to 3 percent of the GDP, and soon, we risk facing an economic heart attack in the next three years,' Dalio wrote on X. 'The good news is that these cuts are possible.' The national debt is nearing $37 trillion — equal to 99 percent of GDP — and the Congressional Budget Office projects it could hit 150 percent by 2055. Dalio, founder of Bridgewater Associates — the world's biggest hedge fund — said a 4 percent adjustment to spending and tax revenues could stabilize the economy and even lower interest rates. 'We know this kind of balance is possible because it happened between 1991 and 1998,' he wrote, pointing to previous bipartisan deficit deals. However, Dalio warned that squabbling between Republicans and Democrats will put off the necessary cuts and only serve to see the national debt and its interest payments grow even more. 'My fear is that we will probably not make these needed cuts due to political reasons, and will have even more debt and debt service encroaching on our spending that will ultimately lead to a serious supply-demand problem.' Dalio has repeatedly warned that economic decisions made by the White House will end in economic catastrophe. In April the billionaire spoke against Trump's decision to launch a global trade war via tariffs on America's trading partners. 'Some people believe that the tariff disruptions will settle down as more negotiations happen and greater thought is given to how to structure them to work in a sensible way,' Dalio wrote in a post on social media site X. 'I am now hearing from a large and growing number of people who are having to deal with these issues that it is already too late.' Dalio has joined a group of other bankers, analysts, and executives who believe the US is heading for a perilous economic moment. JPMorgan's CEO Jamie Dimon warned last month that the US economy was on shifting 'tectonic plates' and warned that inflation could once again rear its ugly head. 'You have all these really complex, moving tectonic plates around trade, economics, geopolitics, and future factors, which I think are inflationary: military, restructuring of trade, ongoing fiscal deficits,; he told the Morgan Stanley US Financials Conference. The co-founder of Home Depot Ken Lagone also raised concerns about US debt, and said it is a 'scary' indicator for the state of the economy. The billionaire said he hoped Washington would heed his warning that 'we have to be mindful of the importance of our status in the world economy and the world markets. 'If we fritter that away, we're in trouble,' the 89-year-old said. 'Four weeks ago, we couldn't float a 20-year bond. They were unbiased. That's a dangerous signal. That's the beginning,' Langone said referencing recent crises in the bond market. As well as rising debt interest payments, the federal government is also seeing the squeeze from bigger demands on Medicare and Social Security as the population ages and lives longer.
Reuters
4 days ago
- Business
- Reuters
No Treasury auction size increases seen at US refunding
NEW YORK, July 28 (Reuters) - The U.S. Treasury is widely expected to maintain current auction sizes for notes and bonds when it announces financing plans this week, and will likely keep them steady for some time, forgoing issuing longer-dated debt to cover the government's fiscal shortfall. Investors will be looking for guidance as to how long the Treasury can hold off not raising the size of the debt auctions used to fund the ballooning U.S. budget deficit. The fiscal deficit is set to increase to a record $2.8 trillion over a decade with the passage of President Donald Trump's "One Big Beautiful Bill," estimates from the Congressional Budget Office showed. The Treasury will release its quarterly borrowing requirements on Monday at 3:00 p.m. ET (2000 GMT) and its refunding plan on Wednesday at 8:30 a.m. ET (1330 GMT). It will also announce auction sizes for new issues of three-year and 10-year notes, as well as 30-year bonds, securities that make scheduled coupon payments to lenders who buy them. Analysts said the Treasury can afford to delay increasing the auction sizes for longer-maturity debt given its focus on the issuance of more Treasury bills where demand has been robust. Treasury recently ramped up issuance of short-dated bills to replenish its cash balance which has shrunk to about $300 billion. It raised the issuance of the bills with maturities under eight weeks, specifically after Trump's spending bill was signed into law. The tax and spending legislation extended the debt ceiling as well by $5 trillion to more than $40 trillion. Bank estimates of additional T-bill supply by the end of the year ranged from $620 billion to more than $800 billion. Analysts said money market funds are well placed to take on the flood of short-term debt issuance in the market. Money market funds, with more than $7 trillion in assets, have been the biggest buyers of T-bills and will continue to be so, with historical third-quarter inflows averaging around $90 billion between 2015 and 2025, excluding 2020 and 2023, according to J.P. Morgan in a research note. The U.S. bank believes money market funds are likely to absorb about 60%-80% of the upcoming T-bill supply in the next few months. "We think the Treasury has the option of not increasing coupons through quite possibly through 2028," said Guneet Dhingra, head of U.S. rates strategy at BNP Paribas, in New York, referring to securities that make coupon payments such as Treasury notes and bonds. "Incremental needs by the Treasury will be financed via will stay stable and will still raise money for the Treasury. But using T-bills is a sustainable and prudent strategy because demand is significant." The move away from the long end has also been partly driven by market considerations, with the Federal Reserve keeping the fed funds rate at a target range of 4.25%–4.50% since December 2024 due to inflation concerns. That has prompted investors to move away from the long end of the curve, keeping their yields higher. By issuing more short-term debt, like T-bills, the Treasury can borrow at lower rates, reducing immediate interest expenses. Treasury Secretary Scott Bessent earlier said increasing long-term bond sales at current high rates was not cost-effective. Wells Fargo, in a research note, said it doesn't expect the Treasury to begin increasing the size of long-dated auctions until February 2027. TD Securities also thinks auction sizes will remain steady until at least late-2026, noting that the bulk of those increases will likely occur on the front end and the belly or the intermediate part of the curve. Tom Simons, chief U.S. economist at Jefferies in New York, also pointed out that given the still uncertain U.S. fiscal outlook, it would be sensible for the Treasury to stay put for now. In the near term, he believes the U.S. economy may end up with more growth and revenue than the CBO's fiscal deficit forecast, which Simons said does not include tariff income. "When you're fairly uncertain about the magnitude of near-term deficits and there are two-sided risks, it makes sense to keep the coupon auction sizes the same," the Jefferies' chief economist said. Investors are also expecting changes to the Treasury's debt buybacks launched in 2024, meant to enhance bond market liquidity. Buybacks provided a regular outlet for investors to sell back to the Treasury older and less liquid off-the-run securities across the yield curve. Lou Crandall, chief economist at money market research firm Wrightson ICAP, thinks the Treasury will bump up buybacks in the 20-year and 30-year maturities, which have been "massively oversubscribed". He added that total offers for those debts have exceeded the operational maximum amount by nearly 7-to-1 in 20-year bonds and more than 5-to-1 in the 30-year sector. In contrast, the Treasury has retired just $2.7 billion in par value terms in the seven- to 10-year sector, Crandall said. "The more aggressive level of dealer participation in bond-sector buybacks probably does warrant an increase in redemption operations at the long end," he noted. "The taxpayer cost-savings of retiring less liquid off-the-runs in the bond sector are real, as are the market-functioning benefits."
Al Jazeera
24-07-2025
- Business
- Al Jazeera
Fact check: Could Trump's trade tariffs pay off the US deficit?
One of the Trump administration's biggest tariff boosters, Commerce Secretary Howard Lutnick, recently said tariffs will not only energise the industrial sector in the United States but also help the government's finances. During a July 20 interview on CBS's Face the Nation, Lutnick told host Margaret Brennan that the US is collecting close to $30bn a month in tariffs. 'You got to remember – this is going to pay off our deficit. This is going to make America stronger,' he said. But the maths falls short. Multiplying the most recent month of US tariff collections by a full decade would not cover the 10-year costs of President Donald Trump's new tax-and-spending legislation, much less all federal deficits during that decade. The current tariffs are slated to increase on August 1, including levies ranging from 20 percent to 40 percent for 21 countries, based on what the Trump administration has said. An analysis by the Congressional Budget Office (CBO) – Congress's nonpartisan number-crunching arm – also projects that 10 years of tariff revenue increases under Trump will not pay for the added deficits from his bill or the cumulative deficits over the next decade. The projected added deficit from the bill is $3.4 trillion, on top of the existing projected deficit over the next decade of $21.8 trillion. 'I can't envision a scenario where the tariff revenues eliminate the deficit,' said Steve Ellis, president of Taxpayers for Common Sense, a group that tracks the federal budget. The White House did not respond to a request for comment for this story. How much is the US collecting from Trump tariffs? The federal government has been taking in higher tariff revenues under Trump's more aggressive tariff policies. Currently, the tariffs are a baseline 10 percent for all countries, plus additional tariffs on some products such as steel. Economists say consumers will ultimately swallow much of the tariff increases. Federal tariff revenue tracked by the Penn-Wharton Budget Model shows that, up to July 11, the federal government had collected about $100bn in tariffs so far this year. During the same period in 2024, before Trump took office, the federal government had collected less than $48bn in tariff revenue. In June 2025, the most recent monthly data available, the federal government took in $27bn in tariffs, according to the Treasury Department. A year earlier, that figure was $6bn. That's an increase of $21bn a month because of Trump's trade policies. If the government were to continue collecting tariff revenue at the June 2025 pace for a full decade – 120 months – that would produce $2.52 trillion in tariff revenue. That is in the ballpark of what the CBO published in June. Taking into account the potential economic shrinkage from higher tariffs, such as higher consumer prices, CBO projected that the boost in tariff revenue would reduce total federal deficits by $2.8 trillion over 10 years. How does this tariff revenue compare with the federal deficit? Without adding in the deficits from the bill Trump just signed, CBO's baseline projection for the cumulative deficits over the next 10 years is almost $21.8 trillion. That is about seven times the size of the CBO's projected tariff revenues over the same period. And the projected tariff revenue under Trump would not fully cover the added deficits just from the 'megabill' Trump signed. According to CBO estimates, the law Trump signed on July 4 will raise deficits by $3.4 trillion beyond their previous trajectory over the next 10 years, which exceeds CBO's tariff revenue projection. There is uncertainty about how much tariff revenue Trump's policies will generate, because he has frequently announced and then paused higher tariffs. 'It is hard to know what the end game is,' Ellis said. 'Is it high tariffs to generate revenue, which would reduce economic activity, or is it to rebalance the trade and eventually lower tariffs', and thus their revenue? The Committee for a Responsible Federal Budget, a fiscally hawkish group, has noted that Trump's tariff policies have been challenged in court, and the initial ruling by the Court of International Trade went against the administration. If the initial ruling is upheld on appeal, then Trump would lose his power to unilaterally enact many of the tariffs he has been imposing, and the new tariff revenues now being generated would largely dry up. And even if Trump's tariff powers are upheld on appeal, Trump's successor could reverse them by executive order, meaning any tariff revenues would cover the next four years, not the next 10 years. Our ruling Lutnick said tariffs are 'going to pay off our deficit'. Trump's on-again, off-again pattern for implementing tariffs makes estimates tricky. But two projections show that the Trump administration's tariff revenues would not cover the next 10 years of projected deficits. The CBO said it expects tariff revenues to reach $2.8 trillion over the next 10 years, while a back-of-the-envelope calculation based on the tariffs collected in June 2025 would reach $2.52 trillion. Both sums are only a fraction of the nearly $22 trillion in cumulative deficits projected over the next 10 years. We rate the statement False.
Wall Street Journal
10-07-2025
- Business
- Wall Street Journal
The Next Beautiful Bills
President Donald Trump's One Big Beautiful Bill makes the government only slightly smaller than it would have been otherwise. But it's a start. The problem to be solved is that federal spending has settled at a new nonemergency height of more than 23% of GDP, far above federal revenue. The Congressional Budget Office reported this week on a spending trajectory that could easily be mistaken for a Biden second term:
