Deficit Spending the Only Thing Keeping the Economy Out of Recession Now

investing.com:

Economic growth continues to defy expectations of a slowdown and recession due to continued increases in deficit spending.

The U.S. Treasury recently reported the December budget deficit, which shows the U.S. collected $429 billion through various taxes while total outlays hit $559 billion.

As noted, the problem remains on how the economy has avoided a recession despite the Fed’s aggressive rate hiking campaign.

Numerous indicators, from the leading economic index to the yield curve, suggest a high probability of an economic recession, but one has yet to occur.

One explanation for this has been the surge in Federal expenditures since the end of 2022 stemming from the Inflation Reduction and CHIPs Acts.

The second reason is that GDP was so grossly elevated from the $5 Trillion in previous fiscal policies that the lag effect is taking longer than historical norms to resolve.

However, that red line in the chart above is the most interesting. Notice that while Federal expenditures are rising, Federal tax receipts are falling. Such is why the national deficit is increasing.

When we discussed this previously, many thought the shortfall was temporary. To wit:

“California’s tax payments are delayed due to the emergency declaration. However, that doesn’t account for the magnitude of the decline in filings.

Secondly, given the shuttering of the entire economy in 2020, which also delayed filings nationwide, the extent of the current decrease seems more than just a single event.”

Given the length of time and the fact the collection rate fell further, it suggests there is more to the decline.

The change in Federal receipts is essential as the Government’s revenue is from the taxes on both corporate and individual incomes.

Unsurpris