U.S. Federal Budget Through 2024 – Deficit and Debt to Accelerate

Introduction

The United States is heading down a fiscal path that’s simply not sustainable, one that could end in bankruptcy and rampant inflation. This isn’t a minor issue—it’s a significant risk that could impact not just the U.S. economy but global markets too.

Today, we’re going to break down the U.S. federal budget, examine its components, and look at where it’s headed. The aim is to understand why this path is so dangerous and how it ties into the broader financial landscape, including the role Bitcoin could play as a hedge against these looming threats.

You can also find a video explanation of the extend of this problem below.

Federal Budget Components

The federal budget is essentially a financial report for the nation, made up of two main parts: outlays (expenses) and revenues (income). In 2023, the U.S. government brought in $4.4 trillion in revenue. This money comes from various sources, like individual income taxes, payroll taxes, and corporate income taxes—in other words, it’s the hard-earned money of Americans, funneled into the government’s treasury.

However, the government’s spending, or outlays, was much higher, totaling $6.1 trillion. These outlays fall into three categories: mandatory spending, discretionary spending, and net interest.

• Mandatory Spending: These are expenses the government is legally required to make, like Social Security, major health programs such as Medicare, and other obligatory costs.
• Discretionary Spending: This covers defense spending and non-defense spending, which includes a wide range of government services like transportation, education, and health.
• Net Interest: This is the interest the government has to pay on its existing debt.

The Grim Outlook

The widening gap between costs and income is a major concern. A chart here would show the projected revenues and outlays over time, according to the Congressional Budget Office. The blue line, which represents outlays, is expected to keep rising, while revenues are projected to stay relatively flat. This growing gap between expenses and income will increase the deficit, putting even more strain on the U.S. economy.

Economic Growth and Its Impact

To bridge the gap between costs and income, the government usually relies on economic growth, which brings in more tax revenue. But the Gross Domestic Product (GDP) is expected to grow more slowly in the coming years. Recently, GDP growth was at 3.1%, but it’s projected to plummet to 1.5% this year—a dangerously low rate for economic growth. While a slight rebound to 2% is expected next year, growth is then projected to gradually decline to 1.7% by 2034.

This sluggish growth indicates that the economy has been weakened by mismanagement following the COVID-19 pandemic. Before the pandemic, the average GDP growth rate was 2.9%, but over the next decade, it’s expected to average just 1.9%. This puts us in a position where costs are rising, but economic growth is too slow to keep up—a recipe for disaster.

Revenues and Expenses in More Detail

In 2024, federal government spending is expected to hit $6.8 trillion, and by 2034, this figure could soar to $11 trillion, reflecting an annual growth rate of 4.5%. This means government spending will rise from 23% to 24.1% of GDP, meaning nearly a quarter of the nation’s economic output will be consumed by government spending.

Increasing Deficit

The result of this imbalance is an increasing deficit. History shows that after every crisis, the deficit spikes significantly. For instance, after the turn of the century, the U.S. shifted from a surplus to a deficit, which worsened after the 2008 financial crisis. Efforts to reduce the deficit were wiped out by the COVID-19 pandemic, which caused another sharp increase, pushing the deficit to unprecedented levels.

Before the pandemic, the deficit was just below $1 trillion, but it exploded to $3 trillion during the pandemic. Currently, the deficit stands at $1.6 trillion, and the trend suggests it will keep climbing.

US Deficit vs. GDP

Another critical metric is the deficit as a percentage of GDP. Next year, the deficit is expected to hit $2 trillion, with some minor improvement before it rises again. By 2030, the deficit is projected to reach $2.8 trillion, or 7% of GDP. This is nearly double the 50-year average of 3.5% of GDP.

It’s important to remember that the deficit is cumulative—even if we maintain a 7% deficit as a percentage of GDP, it will keep adding up, leading to a rapidly growing national debt.

Rising National Debt

As the deficit grows, so does the national debt. Projections show that the debt held by the public as a percentage of GDP will soon reach an all-time high, a level not seen since World War II. Currently, the national debt held by the public is $26 trillion, which is roughly 99% of GDP. By 2050, this amount is expected to double to $51 trillion, or 122% of GDP. This trajectory is clearly unsustainable. As the debt increases, so will the interest payments, leading to even larger deficits. This creates a vicious cycle of rising debt and deficits that could destabilize the U.S. economy.

Conclusion

This unsustainable fiscal path isn’t just a theoretical problem—it’s a real and immediate threat to economic stability.

The rising debt and deficits are likely to lead to currency devaluation, rampant inflation, and could even push the government toward bankruptcy.

This situation highlights the importance of Bitcoin as a hedge against these risks. As traditional financial systems come under increasing strain, Bitcoin provides an alternative store of value that isn’t subject to the same inflationary pressures. Bitcoin isn’t just a risk asset; it also acts as a hedge against the growing currency risk, which increases yearly.