How the Budget Deficit Is Increasing US Debt

Budget deficit

The national debt is used to fund past budget deficits. In 2016, the budget deficit rose to $587.0 million, a 30.0% rise from 2015. Also, the deficit as a percentage of GDP rose 3.2 % in 2016 compared to 2.4% in 2015. The debt held by the public reached 77.0% of GDP in 2016, making it the highest since 1950.

The budget deficit compares federal government spending to its revenues or receipts. The deficit has a large-scale impact on the national debt when the federal government continuously borrows to fund its deficit. The US budget deficit is estimated at $441.0 billion for 2017. Let’s take a look at the budget deficit over the years.

How the Budget Deficit Is Increasing US Debt

US budget deficit in the past 10 years

The mortgage crisis that began in December 2007 resulted in massive economic and financial challenges for the United States. It led to more deficit in 2008. The deficit continued to rise in 2009 to $1.4 trillion when the federal government took an aggressive step to attempt to restore the health of the economy.

As you can see in the above graph, the deficit fell slightly in 2010 due to improvements in economic growth. Since 2012, there’s been a continuous decrease in the deficit as the economy showed some recovery. However, the deficit increased $587.0 billion in 2016, and it’s expected to fall below 3.0% of GDP in 2017.

The Congressional Budget Office estimates that the budget deficit will fall in 2017 to 2.9% of GDP and in 2018 to 2.4% of GDP. The fall in the deficit is likely to help reduce the debt level.

Economic impact

The rising deficit and growing debt are likely to affect the bond markets (IEF) (TLH). The spiral of debt can lead to rising borrowing costs for non-government issuers, thus increasing yields.

Utilities tend to have high debt loads, making them vulnerable to interest rates. Utility companies include Duke Energy (DUK), NextEra Energy (NEE), Southern Company (SO), and Dominion Resources (D).

Let’s look next at the debt-to-GDP ratio globally.