July deficit hit $432B — the largest July on record and 4th-biggest monthly gap ever. That's a $312B jump from June.
Few thoughts:
First, context matters. July is always messy because of timing quirks in government payments. Some years you get double Social Security disbursements or shifted military payrolls. So month-to-month comparisons can be noisy.
That said, $432B is objectively wild. We're running deficits like we're in a recession, but we're not. Unemployment is low, GDP is growing, tax receipts should be fine. Yet here we are.
What's driving it? Spending isn't slowing down. Interest on the debt is now one of the biggest line items in the budget — north of $1T annualized. That's the compounding effect of higher rates meeting a $34T+ debt pile. It's structural now, not cyclical.
Market impact? Treasuries have to absorb all this issuance. More supply, same demand = upward pressure on yields unless the Fed steps in or foreign buyers show up. And with the Fed still in quantitative tightening mode, they're *not* stepping in.
This is the backdrop for everything — why the 10-year keeps testing higher, why fiscal dominance is becoming the base case, why inflation may stay stickier than the consensus thinks.
You can't run deficits like this forever without consequences. Either growth has to accelerate dramatically (unlikely), taxes go up (politically tough), spending gets cut (good luck), or we inflate our way out (most likely path, historically).
Watch the bond market. It's smarter than the headlines.
Few thoughts:
First, context matters. July is always messy because of timing quirks in government payments. Some years you get double Social Security disbursements or shifted military payrolls. So month-to-month comparisons can be noisy.
That said, $432B is objectively wild. We're running deficits like we're in a recession, but we're not. Unemployment is low, GDP is growing, tax receipts should be fine. Yet here we are.
What's driving it? Spending isn't slowing down. Interest on the debt is now one of the biggest line items in the budget — north of $1T annualized. That's the compounding effect of higher rates meeting a $34T+ debt pile. It's structural now, not cyclical.
Market impact? Treasuries have to absorb all this issuance. More supply, same demand = upward pressure on yields unless the Fed steps in or foreign buyers show up. And with the Fed still in quantitative tightening mode, they're *not* stepping in.
This is the backdrop for everything — why the 10-year keeps testing higher, why fiscal dominance is becoming the base case, why inflation may stay stickier than the consensus thinks.
You can't run deficits like this forever without consequences. Either growth has to accelerate dramatically (unlikely), taxes go up (politically tough), spending gets cut (good luck), or we inflate our way out (most likely path, historically).
Watch the bond market. It's smarter than the headlines.