The US government is dramatically raising its expectations on how much capital it needs to borrow this quarter amid a growing fiscal deficit and dwindling cash reserves.
The Treasury Department says it has increased its Q3 borrowing estimate to $1.007 trillion, significantly higher than its prior May estimate of $733 billion.
The Treasury says the increase is primarily due to the “lower beginning-of-quarter cash balance and higher end-of-quarter cash balance ($50 billion),” plus projections of lower receipts and higher outlays.
During the nine months through June, the federal deficit hit $1.39 trillion, a 170% increase from the same period the year before.
The Treasury reported that the government spent more than $4.80 trillion from October 2022 to June 2023, while generating $3.413 trillion in taxes and other revenues.
And according to Bloomberg, the weighted average interest that the US is paying on its outstanding debt hit 2.76% at the end of June, which is the highest level in more than 11 years.
The US government borrows money from a number of sources including domestic and foreign governments, as well as institutional investors like mutual funds, pension funds and individuals who buy Treasury bills, notes and bonds. The capital is used to pay outstanding debts and fund government programs and operations.
Ratings agency Fitch says that while the United States continues to maintain a credit rating of “AAA,” the highest designation assigned to countries that have the lowest expectation of default risk, it is currently on negative watch due to the nation’s fiscal and debt trajectories.
“Fitch believes the US rating is supported by exceptional strengths, including the size of the economy, high GDP (gross domestic product) per capita and dynamic business environment.
The US dollar is the world’s preeminent reserve currency, which gives the government unparalleled financing flexibility. Some of these strengths could be eroded over time by governance shortcomings.”
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