U.S. Economy

Why America's Deficit Doubled to $2 Trillion in One Year

The United States government will run a deficit of around $2 trillion, double last year's number, for the fiscal year that ends in just over three weeks.

For the first 10 months of the fiscal year, ending in July, the federal deficit is $891 billion higher than in the same span of the 2022 fiscal year.

Understanding why is key to revealing something important about how inflation and debt interact. It can sometimes seem like a burst of inflation is a get-out-of-jail-free card for a highly indebted government.

Most federal government obligations are real, not nominal. Higher inflation means higher Social Security and Medicare costs, not to mention everything else the government buys.

  • Moreover, one way or another, higher inflation usually leads to higher interest rates and higher debt service costs in the future.
  • In effect, much of 2023's surging deficit is, in one way or another, paying the piper for the inflation of 2021 and 2022.
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