Reason
· collected 2026-10-05 · by J.D. Tuccille
Fiscal year 2026 ended last week, and while official figures aren't out yet, it looks like the federal government spent $2 trillion more than it took in.
asserted
it → end → more
That's not quite a record—in dollar terms, the federal government ran a bigger deficit in 2020 when the feds showered money on the country in hopes of offsetting COVID-19 lockdowns (fueling inflation in the process), and the deficit was a bigger share of GDP both that year and during the Great Recession.
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deficit → run → Recession
But given the federal government hasn't balanced its books in 25 years, a $2 trillion deficit adds to already staggering national debt and looming disaster.
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deficit → give → debt
You are reading The Rattler from J.D. Tuccille and Reason.
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You → read → Tuccille
The Feds Run Up the Credit Card
Noting the end of the fiscal year, on October 1 the Committee for a Responsible Federal Budget (CRFB) commented: "Although official figures have not yet been released, our preliminary estimates show high and rising deficits and debt."
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estimates → run → deficits
Among other things, the CRFB estimated a $2 trillion total deficit, totaling 6.2 percent of GDP, with debt held by the public at $32.3 trillion, or 100 percent of GDP.
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CRFB → estimate → GDP
Interest alone totaled $1.1 trillion, "a record 3.4% of GDP."
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Interest → total → GDP
The budget watchdog added that interest on money borrowed to finance the accumulated debt and deficits was the second largest line item, outpacing both defense and Medicare.
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interest → add → defense
The U.S. Department of the Treasury, using figures through the end of August, put the 2026 federal deficit at $1.965 trillion.
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Department → use → trillion
It's a fair bet that another month of spending put the deficit over the $2 trillion mark.
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month → put → mark
To put this in context, in 2020, "in response to the pandemic's dislocations, the US government sent about $5 trillion in checks to people and businesses, $3 trillion of it newly printed money, with no plans for repayment," as economist John H. Cochrane described for the International Monetary Fund.
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Cochrane → put → Fund
According to the Federal Reserve Bank of St. Louis, that tallied to 14.5 percent of GDP.
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that → accord → GDP
It also, according to Cochrane as well as researchers from Massachusetts Institute of Technology, fueled painful inflation.
uncertain
It → accord → inflation
Federal stimulus in response to the Great Recession created a 2009 deficit of 9.8 percent of GDP.
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stimulus → create → GDP
Theoretically, those spending sprees were intended to offset emergencies, even if they had bad effects themselves.
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they → intend → effects
But the FY 2026 deficit was just spending as usual, representing a growing gap between what the federal government collects and what it spends that has left the budget unbalanced since 2001 and only intermittently balanced before then.
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that → spend → 2001
The result, as the CRFB points out, is accumulating national debt, with debt held by the public over $32 trillion, plus intragovernmental debt (owed by the government to itself) of almost $8 trillion, for more than $40 trillion in total national debt.
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CRFB → point → debt
In fact, economists Jagadeesh Gokhale and Kent Smetters of the Penn Wharton Budget Model say that unfunded obligations involving Social Security and Medicare raise the federal government's total debt burden, as of January 2025, to $91.9 trillion.
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obligations → say → trillion
The problem for those of us who didn't already know is that, as detailed by Abhi Gupta of the Yale Budget Lab, legislators have almost totally abdicated their fiscal responsibilities: "Since 2004, Congress has generally enacted less deficit reduction than its pre-2004 predecessors would have in response to the budget outlooks it faced, even as federal debt has climbed past 100% of GDP."
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debt → know → GDP
And there's little evidence that lawmakers are interested in reining-in the spree.
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lawmakers → be → spree
Borrowing Money Is Getting More Expensive
It's important to note the role that interest payments now play as the second largest expense in the federal budget, since that's likely to increase until borrowing largely devours the budget.
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borrowing → borrow → budget
"The 10-year Treasury yield exceeded 5.3 percent yesterday—its highest intraday level since 2002," Ryan Bourne and Nathan Miller of the Cato Institute wrote October 1.
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Bourne → exceed → Institute
"The federal government had accumulated $32.4 trillion of debt held by the public through Monday, up from $27.5 trillion in April 2024.…
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government → accumulate → 2024.
Maturing debt must be refinanced at whatever rates investors demand today.
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investors → mature → rates
Previously 'cheap' debt is becoming more expensive.
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debt → become → ?
Bourne and Miller clarify that there's no risk of the whole debt being immediately refinanced at higher rates.
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debt → clarify → rates
But as debt instruments mature, they incrementally roll over at new rates, which are creeping higher.
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which → mature → rates
The authors point to evidence that growing indebtedness among governments around the globe, not just in the U.S., is pushing interest rates up.
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indebtedness → point → rates
That's raising the cost of borrowing across the board.
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That → raise → board
So, after decades of spending without regard for fiscal reality, how long can the U.S. federal government continue its profligate habits?
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government → spend → habits
Rising borrowing costs could be an indicator that the market is losing confidence that debt-burdened governments will ever control spending or meet their obligations.
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governments → rise → obligations
Some economists see that as an indicator of trouble to come.
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economists → see → trouble
"We project that the outer-bound debt-to-GDP ratio that the U.S. economy can sustain is about 210 percent of GDP," the Penn Wharton Budget Model's Kent Smetters and Hangjun He warned in June.
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Smetters → project → June
"Above this level, there is no feasible future additional tax on broad-based labor income that can finance the interest payments at the returns demanded by financial markets."
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that → be → markets
Smetters and He plot several scenarios, concluding that the limit is likely to be hit within 20 years but that "there is a 25% chance of hitting the debt maximum in 14 years."
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limit → plot → years
The shorter deadline for the government to get its finances in order comes from "higher interest costs and relatively smaller GDP due to debt crowding out some capital formation."
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debt → get → formation
That's worth keeping in mind in light of the warning from Bourne and Miller about rising Treasury yields.
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That → keep → yields
Americans have grown accustomed to a federal government that runs up the credit card as it pleases without regard for the eventual bill.
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it → grow → bill
But the cost to finance that spending spree is already enormous and crowding out alternative spending priorities.
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cost → finance → priorities
The day rapidly approaches when the government will lose the ability to borrow more money, or even to pay the interest on existing debt.
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government → approach → debt
The Aporia
