Why the budget deficit for FY14 was at a 6-year low



What’s the budget balance?

The budget balance is the difference between what a country’s government earns from taxes and other sources and what it spends. A budget deficit occurs when spending exceeds earnings.

Federal budget over gdp

When spending exceeds earnings, the government borrows money from its citizens. It also borrows money from foreign entities. As this debt keeps on accumulating, it’s possible that the value of its currency will decrease. The currency decreases because of fears within the international community. Other countries question the country’s ability to repay the debt.

Tracking the federal budget balance

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The U.S. Treasury reports the federal budget balance on a monthly basis. The U.S. Federal budget deficit fell to $483 billion for fiscal year 2014—October 2013-September 2014. This is 29% lower than the deficit in fiscal year 2013. It’s $165 billion less than the forecast in President Obama’s fiscal year 2015 budget. September is usually a surplus month. Businesses and individuals make quarterly tax payments. There was a surplus of $150.8 billion for September.

As a percentage of gross domestic product (or GDP), the deficit fell to 2.8%. This is the lowest level since 2007.

U.S. government policies—like cutting spending and higher taxes on wealthy individuals—led to this decline.

Budget deficit impacts U.S. debt

The deficits continue to accumulate. They keep getting added to the U.S. federal debt. The federal debt exploded since 2008. However, the situation is getting better. This should be positive for the USD. A strengthening USD usually leads to weaker gold prices.

It’s negative for gold-backed exchange-traded funds (or ETFs) like the SPDR Gold Shares (GLD). It’s also negative for stocks like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), and Kinross (or KGC). It’s negative for ETFs that invest in the above stocks like the Gold Miners Index (GDX).

Click here to learn about gold’s key indicators.


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