Diving Deep into the 1.7 Trillion US Budget Deficit | Weekly Business Briefs w/ Martin Perdomo

Prepare to be in the know as we delve into the behemoth of a topic - the US budget deficit projected to skyrocket to 1.7 trillion in 2023. We'll be unpacking this fiscal mammoth, discussing President Biden's foreign aid and security expenditure proposals, and how they could fan the flames of fiscal wars with House Republicans. Learn how the surge in interest rates could squeeze the government's ability to service its debt, possibly leading us into a dire financial strait.

In this episode, we also put the spotlight on the US Treasury yields, holding steady but flirting with 16-year highs. We'll be interpreting the resulting turbulence in the bond market, with insights from financial expert Bill Aikman on the dangers of shorting bonds at the current long-term rates. We top off our discussion with the Israel-Hamas conflict's potential fallout on global trade, featuring insights from World Bank President AJ Banga on these geopolitical tensions' impact on global economic growth. Brace yourself for a torrent of vital financial insights you won't find anywhere else.

Transcript

Speaker 0: 0:00

US budget gap soars 1.7 trillion, the largest outside of the COVID era. Treasury yields are little change after 10 years, slipped back below 5% and as Israel Hamas war rages, global finance chief in Saudi sounds gloomy note. These are the top three headlines in this week's weekly business brief. First up US wraps up fiscal year with a budget deficit nearly 1.7 trillion. According to Reuters, the US government on Friday posted a 1.695 trillion budget deficit in fiscal 2023, a 23% jump from the prior year, as revenues fell and outlays for social security, medicare and record high interest costs on the federal debt rose. The treasury department said the deficit was the largest since the COVID fueled 2.78 trillion dollar gap in 2021. It marks a major return to ballooning deficits after back-to-back declines during the president Joe Biden's first two years in office. The deficit comes as Biden is asking Congress for $100 billion in a new foreign aid and security spending, including $60 billion for Ukraine and $14 billion for Israel, along with the funding for US border security and the Indo-Pacific region. The big deficit, which exceeded all pre-COVID deficits, including those bought by the Republican tax cuts passed under Donald Trump and from the financial crisis years, it's likely to inflame Biden's fiscal battles with Republicans in the House of Representatives, whose demands for spending cuts pushed the US into the brink of default in early June. Over the debt ceiling, a deal to avoid government shutdown over deeper spending cut demands from Republican hardliners led to the outstead of the US House of Representatives speaker Kevin McCarthy, and the party is still divided over who should lead them, which is expected to make negotiations ahead of the new fiscal deadline in mid-November more difficult. For September, the final month of the fiscal year, the deficit fell to $171 billion from $430 billion in September of 2022. So this article here is referencing to the point that interest payments for the government is going up. As interest rates continue to rise, it puts a lot of pressure on the government to pay higher interest on the debt that we owe. Puts a lot of pressure on the government, but also on the feds. But they're gonna have to start to bring down the federal interest rates so that this doesn't drive us to major, major problem that we might not be able to get out of.

Speaker 0: 2:49

Next up. Us Treasury yields were steady, though they remained near 16 year highs. Also from CNBC, at around 747 am, eastern yield benchmark of 10 year Treasury note was up around one basis point at 4.85, while the yield on the 30 year Treasury bond climbed less than one basis point to 4.99. Yields moving versely to prices a 10 year climbed above 5% on Monday, having crossed a symbolic threshold last week for the first time since 2007. Guys, we haven't seen interest rates this high since 2007. Before retreating over the course of the session.

Speaker 0: 3:27

Yields fell after Pershing Square's Bill Aikman on Monday disclosed that he had covered his bond short precision. In a post on social media platform ex, formerly known as Twitter, aikman said there is too much risk in the world to remain short bonds at current long-term rates, trying to move to a view that bonds could soon become interesting as a safe haven, with stocks remaining volatile amid widespread geopolitical risk. Jim Reid, head of the global economic and thermodynamic research of the Dutch bank, said in an email Tuesday that explaining and predicting the recent wild bond market swings was becoming increasingly tough and that the US Treasuries were the main story in the market over the past 24 hours. Again, this goes back to interest rates. The feds having pushed the interest rates to where they are is creating all of this volatility in the bond market.

Speaker 0: 4:24

Lastly, israel Hamas war could affect the world economy and worsen global trade tensions. According to Reuters, wall Street's top financiers stuck a pessimistic tone about the global economy at the flagship gathering in the Saudi Arabia aimed to deal brokering as a violent conflict between Israel and Hamas that has killed thousands of people unfolds. The annual event is typically used by attendees as the opportunity to build relationships with some of the Saudi Arabia's biggest companies and its $778 billion sovereign wealth fund, drawn by promise of deals as the kingdom embarks on the ambitious reform plan to wean its economy off oil. But an escalation between Islamic group Hamas and Israel into the border conflict overshadowed that the event dubbed Davos in the desert, a nod to the annual gathering of the world leaders and corporate bosses in the Swiss Alps.

Speaker 0: 5:24

Geopolitical tensions, heightened by the Middle East conflict, posed the biggest threat to the world economy. World bank president AJ Banga said there is so much going on in the world and geopolitics and the wars that you're seeing and what just happened recently in Israel and Gaza. At the end of the day, when you put all this together, I think the impact on economic development it's even more serious. Banga said and this has been your weekly business brief. I'll see you guys next week. Peace out.