US deficit blows past $2.7 trillion with 3 months to go. But should we worry about that?

We know that the Federal budget deficit has blown up to record levels in these last few months. But even so, today's figures still had to make you step back and say "WHOA!"

The Treasury Department reported Monday that the deficit hit $864 billion last month, an amount of red ink that surpasses most annual deficits in the nation's history and is above the previous monthly deficit record of $738 billion in April. That amount was also tied to the trillions of dollars Congress has provided to cushion the impact of the widespread shutdowns that occurred in an effort to limit the spread of the viral pandemic.

For the first nine months of this budget year, which began Oct. 1, the deficit totals $2.74 trillion, also a record for that period. That puts the country well on the way to hitting the $3.7 trillion deficit for the whole year that has been forecast by the Congressional Budget Office.

That total would surpass the previous annual record of $1.4 trillion set in 2009 when the government was spending heavily to lift the country out of the recession caused by the 2008 financial crisis.

In fact, June's deficit of $864 billion isn't far off of the $984 billion deficit for all of FY 2019.

If you dig into the Treasury's statement and then compare the numbers back for the last 6 months to the same months in 2019, you can see where COVID-19 and the recession blew up, which then blew up the deficit.

Part of the reason behind the explosion in the deficit is revenue-based, with that decline coming from COVID-19 fallout. And not just because there are millions fewer people working at this point in 2020, but also because of legislation that delayed the 2020 tax deadline to July 15 (aka, "Wednesday"). This means that people like me and my wife weren't paying our $3,000 tax bill in April, as we did in 2019, and that's reflected in the huge difference in April revenues between those 2 years.

But you'll see that the difference in revenues for June is only $94 billion, while the total deficit for June 2020 was $855 billion more than it was in June 2019. Which means the big blowup was on the spending side, and the Treasury Department pinpointed one big payout in particular.

...More than half of this increase [in the deficit vs 2019] was due to a $511 billion increase in Small Business Administration budget outlays, primarily for the Paycheck Protection Program (PPP). Cash expenditures for loan forgiveness under PPP will occur in subsequent months.

PPP payments caused a huge one-time jump in expenses for the country as a whole, much like we saw in April when hundreds of billions of dollars in stimulus checks went out to everyday Americans.

One other big number that's driving up expenses is the $600 federal add-on for unemployment benefits, in addition to the tens of millions of additional people getting benefits in 2020. That was $260 billion more than what was spent for unemployment in June 2019, and that and the PPP funding illustrate the level of money that has been going out of DC to keep people afloat.

Which also illustrates the danger in using the exploding deficit as an excuse to cut off this additional aid in a time when COVID-19 is as widespread as ever, and states and communities feel that they have to re-institute restrictions on businesses to slow that spread. There's nothing coming that's going to replace that loss of income from the Feds, which makes it increasingly likely that the recession resumes and gets deeper in the second half of 2020 if Congress doesn't continue to spend on Americans.

Yes, that'll send the deficit spiraling higher. But with little to no inflation (well, other than the stock market and the grocery store), and with 10-year bonds still fetching an annual yield of 0.62%, our record deficit hasn't had any effect on our economy beyond allowing some semblance of demand to continue. So outside of the absurd number on the paper (which does have its shock value), our deficit really isn't a economic problem for us in Summer 2020. And we certainly shouldn't look at the deficit number to guide policy at this time.