The Congressional Budget Office updated its budget and deficit forecasts in August and now estimates the federal budget deficit for fiscal year 2019 at almost $900 billion, virtually unchanged from its January estimate. If that weren’t bad enough, the CBO estimates the budget deficit will top $1 trillion annually for the next several years starting in 2020.

This proves it doesn’t matter who is in the White House, or which party controls Congress, federal spending goes up every year. You may recall candidate Donald Trump promised repeatedly that he would eliminate all government debt in eight years. As regular readers will recall, I blasted that promise out of the water.

In March of this year, President Trump submitted his federal budget proposal for FY2020, which begins just ahead on October 1. In his budget proposal, federal spending would climb to a new record of $4.75 trillion in FY2020, with a budget deficit of $1.1 trillion. We haven’t seen $1 trillion+ deficits since the years just after the Great Recession (2009-2012).

Perhaps the most notable fact about this year’s nearly $1 trillion budget deficit and FY2020’s estimate of $1.1 trillion is that they will have occurred during a strong economy, assuming we don’t have a recession in the first half of next year. Normally, during strong economic times, the deficit gets smaller. Not any more, apparently!

Now, it’s not that the government will have any trouble peddling these trillion-dollar deficits. Demand for US Treasuries remains very strong. The real question is: What happens in the next recession? The answer is that annual budget deficits will grow even higher in the next recession. That is, unless the government cuts spending, and I believe we can safely rule that out, unfortunately.

The other important question is: What happens when interest rates normalize at significantly higher levels? The answer is that interest paid on the national debt will skyrocket, and it has already started trending significantly higher since 2016.

Depending on how much interest rates rise, the estimates illustrated above could be low. How much higher, you may ask. The CBO addressed this question in its August budget update wherein it suggested that in the next recession, if spending is not cut, we could see annual budget deficits of $2 trillion or more, possibly for several years. Wow!

The latest CBO report also warned that the Federal Reserve will not, at some point, be able to continue buying up government debt at will in the next recession, especially if interest rates rise as expected. That’s a subject I will address at another time.

FYI, it may interest you to know that the Fed restarted its government bond-buying program – referred to as “quantitative easing” or QE – in the last week of August and again this week. The latest bond-buying came after 250 consecutive weeks with no purchases as the Fed tried (but failed) to ‘normalize’ interest rates. That, too, is a topic I’ll address at another time, probably next Tuesday. I believe I know what the Fed is up to with its recent interest rate cut and now the apparent resumption of QE. I’ll let you know next week.

Here’s another Fed teaser for next week’s Forecasts & Trends. Last week, the former President of the New York Federal Reserve Bank, Bill Dudley, posted an article on Bloomberg in which he argued that the Fed should not be cutting interest rates now. His reason: Because it will be good for the economy and thereby help President Trump’s re-election chances.

Dudley went so far as to suggest that “The election itself falls within the Fed’s purview.”  So much for the theory that the Fed is non-political! Again, I’ll have more to say on this in F&TE next week.

The bottom line is that the CBO expects the federal budget deficit to top $1 trillion in FY2020, which begins next month and continue to exceed $1 trillion for the next several years.

Even scarier, the CBO predicts the annual budget deficit could double to $2 trillion a year in the next recession if lawmakers in Congress don’t cut spending significantly. I think it’s safe to say that will not happen.

Sadly, I also think it’s safe to say that lawmakers in Washington will continue to increase spending and deficits every year until the world decides to stop buying our ever-increasing amount of government debt.

I don’t know when that day comes – no one does – but when that day arrives, I expect a global financial crisis that makes 2008 look like a walk in the park. This is simply insane!