Recent reports indicate that the US government will need to borrow a whopping $1 trillion in the third quarter of 2023. This is due to a combination of factors, including a growing fiscal deficit and a decrease in cash reserves.

Decreasing cash reserves

The Treasury Department has updated its estimate, stating that it now expects to borrow $1.007 trillion, which is a significant increase from the May estimate of $733 billion.

This increase can be attributed to a lower cash balance at the beginning of the quarter and a higher balance at the end, as well as projections of lower receipts and higher outlays.

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In the period of nine months leading up to June, the federal deficit reached $1.39 trillion, marking a 170% increase from the previous year.

The Treasury disclosed that from October 2022 to June 2023, the government spent more than $4.80 trillion, whilst earning $3.413 trillion from taxes and other revenue.

Bloomberg reports that the US is paying a weighted average interest of 2.76% on its outstanding debt, which is the highest it has been in over 11 years.

The US government obtains funds from a range of sources, including domestic and foreign governments, as well as institutional investors such as mutual funds, pension funds, and individuals who purchase Treasury bills, notes, and bonds.

These funds are utilized to pay off debts and finance government programs and activities.

Fitch, a ratings agency, has reported that the United States still holds a “AAA” credit rating, which is the highest possible rating given to countries with a low risk of default.

However, the nation is currently on negative watch because of its fiscal and debt trajectories.

Fitch acknowledges that the US rating is backed by exceptional strengths, such as a large economy, high GDP per capita, and a thriving business environment.

Additionally, the US dollar is the world’s primary reserve currency, which provides the government with unparalleled financial flexibility. However, governance shortcomings could eventually weaken some of these strengths over time.

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