Federal Government Debt: An Accident Waiting to Happen? Jay H. Bryson, Managing Director and Acting Chief Economist February 14, 2020
Federal Government Debt
Total Public Debt Outstanding Thousands
Trillions of USD
The level of federal government debt has skyrocketed in recent years and currently exceeds $23 trillion
$25
$25 Total Public Debt Outstanding: Dec @ $23.2T
$20
$20
$15
$15
$10
$10
$5
$5
$0
$0 40
45
50
55
60
65
70
75
80
85
90
95
Source: U.S. Department of Treasury and Wells Fargo Securities, February 2020
Economics
2
00
05
10
15
Debt-to-GDP Ratio of the Federal Government
U.S. Debt Held by the Public Percent of GDP
120%
120%
Federal Debt Held by the Public: 2019 @ 79.2%
WW II
100%
The ratio of marketable debt-toGDP has climbed to its highest level since the end of the Second World War
100%
80%
80%
60%
60%
40% Civil War
40%
WW I
20%
0% 1790
20%
0% 1814
1838
1862
1886
1910
1934
1958
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
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3
1982
2006
Federal Government Budget Balance
Thousands
Federal Budget Surplus or Deficit Billions of USD, 12-Month Moving Sum
$1,000
$1,000
Federal Budget Balance: Dec @ -$1,022.0 Billion $500
$500
$0
The deficit has widened in recent years and currently exceeds $1 trillion
$0
-$500
-$500
-$1,000
-$1,000
-$1,500
-$1,500
-$2,000
-$2,000 70
74
78
82
86
90
94
98
02
06
Source: U.S. Department of Treasury and Wells Fargo Securities, February 2020
Economics
4
10
14
18
Federal Budget Balance as a Percent of GDP
Federal Budget: Deteriorating in an Expansion 4-Quarter Moving Sum, Percent of GDP
The deficit-to-GDP ratio is rising even though the economy is experiencing the longest expansion in the post-WWII era
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
-10% Federal Budget Balance: Q4 @ -4.7%
-12%
-12% 76
80
84
88
92
96
00
04
08
Source: U.S. Department of Treasury and Wells Fargo Securities, February 2020
Economics
5
12
16
20
Federal Spending & Revenue
Federal Spending vs. Revenue As Percent of GDP
A decline in revenues (as a percent of GDP) is the main reason why the deficit-to-GDP ratio has deteriorated recently
25%
25%
20%
20%
15%
15%
Revenue: Dec @ 16.0% Spending: Dec @ 20.7% 10%
10% 70
75
80
85
90
95
00
05
10
15
Source: U.S. Department of Commerce, U.S. Department of Treasury and Wells Fargo Securities, February 2020
Economics
6
Federal Spending Breakdown
Composition of Federal Spending (FY 2019) Other Mandatory 12.8%
Major Health Programs 25.3%
Defense Discretionary 15.2%
Entitlements account for one-half of federal spending Nondefense Discretionary 14.8%
Social Security 23.4% Net Interest 8.4%
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
7
Federal Revenue Breakdown
Composition of Federal Revenue (FY 2019) Corporate Income Taxes 6.7%
Other 7.8%
Individual income taxes and payroll taxes account for the vast majority of federal revenues
Individual Income Taxes 49.6%
Payroll Taxes 35.9%
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
8
Federal Spending & Revenue
U.S. Budget Gap CBO Baseline Scenario Projections, Percent of GDP 26%
26% Outlays: 2030 @ 23.4%
Forecast
Revenues: 2030 @ 18.0% 24%
24%
22%
CBO projects that the outlaysto-GDP ratio will trend higher over the next ten years
22%
Avg. Outlays 1969-2018
20%
20%
18%
18% Avg. Revenues 1969-2018
16%
16%
14%
14% 75
80
85
90
95
00
05
10
15
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
9
20
25
U.S. Federal Budget Balance
U.S. Federal Budget Balance Billions of USD; Percent of GDP $1,000
6% Federal Budget Balance: FY 2019 @ -$-984.4B (Left Axis) CBO Forecast: FY 2030 @ -$1,742.3B (Left Axis) Federal Budget Balance: FY 2019 @ -4.6% (Right Axis)
$500
3%
CBO Forecast: FY 2030 @ -5.4% (Right Axis) $0
CBO projects that deficits will exceed $1 trillion per annum for at least the next ten years
0%
-$500
-3%
-$1,000
-6%
-$1,500
-9%
-$2,000
-12% 00
02
04
06
08
10
12
14
16
18
20
22
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
10
24
26
28
30
U.S. Federal Spending Projection
U.S. Federal Government Outlays Percent of GDP, CBO Extended Baseline Projections 35%
35% Net Interest: 2049 @ 5.7%
30%
Other Programs: 2049 @ 7.1%
30%
Healthcare Programs: 2049 @ 9.3% Social Security: 2049 @ 6.2%
CBO projects that entitlements will account for an increasing share of federal spending in the years to come
25%
25%
20%
20%
15%
15%
10%
10%
5%
0% 2018
5%
0% 2022
2026
2030
2034
2038
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
11
2042
2046
Debt Projection
U.S. Debt Held by the Public CBO Extended Baseline Projections, Percent of GDP
160%
160%
Federal Debt Held by the Public: 2049 @ 144.0% 140%
140%
120%
120% WW II
Under current legislation, the debt-to-GDP ratio of the federal government is set up rise sharply
100%
100%
80%
80%
60%
60%
40%
Civil War
WW I
20%
20%
0% 1790 1814 1838 1862 1886 1910 1934 1958 1982 2006 2030
Source: Congressional Budget Office and Wells Fargo Securities, February 2020
Economics
40%
12
0%
Government Debt
Government Debt by Country Percent of GDP
The debt-to-GDP ratio of the U.S. government is not wildly out of line with other major economies
250%
250%
200%
200%
150%
150%
100%
100%
50%
50%
0%
0% GE
UK
CA
FR
US
Source: International Monetary Fund and Wells Fargo Securities, February 2020
Economics
13
IT
JP
Ownership of Treasury Securities
Treasury Security Holdings by Sector Percent of Total Treasury Securities Outstanding as of Q3-2019
Households, 11%
Foreign, 36%
Fed, 12%
Treasury securities are widely held across different sectors
U.S. Financial Inst., 37%
Source: Federal Reserve Board and Wells Fargo Securities, February 2020
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Other, 4%
Foreign Holders of Treasury Securities
Top Ten Foreign Holders of U.S. Treasurys Billions of USD, Holdings as of June 2018 $1,200
$1,200 Total Final Foreign Holdings: 2018 @ $5,467 Billion
$1,000
Among foreign economies, China and Japan own the most Treasury securities but other countries own significant quantities as well
$1,000
$800
$800
$600
$600
$400
$400
$200
$200
$0
$0 CH
JP
BR
IR
UK
SW
LU
TW
Source: U.S. Department of Treasury and Wells Fargo Securities, February 2020
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15
HK
IN
Savings & Investment
Savings & Investment in Advanced Economies Percent of GDP
A global savings glut means that there is financing available for the U.S. federal government
26%
26%
24%
24%
22%
22%
20%
20%
18%
18% Investment: 2018 @ 21.9% Gross National Savings: 2018 @ 22.7%
16%
16% 00
02
04
06
08
10
12
14
Source: International Monetary Fund and Wells Fargo Securities, February 2020
Economics
16
16
18
Debt Comparisons
Gross Government Debt by Country Trillions of USD; Year-End Yield, 2019 $25
5% Gross Government Debt (Left Axis) 10-Year Yield (Right Axis)
The market for U.S. Treasury securities is the deepest, most liquid, most transparent financial market in the world
$20
4%
$15
3%
$10
2%
$5
1%
$0
0%
-$5
-1% US
JP
FR
IT
UK
Source: International Monetary Fund and Wells Fargo Securities, February 2020
Economics
17
GE
CA
Wells Fargo Securities Economics Group Economists & Macro Strategists
Economic Analysts
Jay H. Bryson, Acting Chief Economist
…jay.bryson@wellsfargo.com
Shannon Seery, Economic Analyst
Mark Vitner, Senior Economist
mark.vitner@wellsfargo.com
Matthew Honnold, Economic Analyst
Sam Bullard, Senior Economist
sam.bullard@wellsfargo.com
Jen Licis, Economic Analyst
Nick Bennenbroek, Macro Strategist
Hop Mathews, Economic Analyst
nicholas.bennenbroek@wellsfargo.com
Tim Quinlan, Senior Economist
tim.quinlan@wellsfargo.com
Azhar Iqbal, Econometrician
azhar.iqbal@wellsfargo.com
Sarah House, Senior Economist Charlie Dougherty, Economist Erik Nelson, Macro Strategist
shannon.seery@wellsfargo.com matthew.honnold@wellsfargo.com jennifer.licis@wellsfargo.com hop.mathews@wellsfargo.com
Administrative Assistants
sarah.house@wellsfargo.com Coren Burton, Administrative Assistant
charles.dougherty@wellsfargo.com
coren.burton@wellsfargo.com
erik.f.nelson@wellsfargo.com
Michael Pugliese, Economist
michael.d.pugliese@wellsfargo.com
Brendan McKenna, Macro Strategist
brendan.mckenna@wellsfargo.com
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