US deficit soars to record high

Washington — Massive government rescue payments to help businesses and households survive the economic hit from the coronavirus drove a record surge in the US deficit last month, the Treasury Department said Monday.

“Driven by the impact of the COVID-19 outbreak and government response, the deficit for June 2020 was $864 billion, compared to $8 billion in June 2019,” Treasury said in its monthly report statement.

That was well past the previous record of $234 billion set in February 2009 at the start of the global financial crisis.

With outlays in June surging to $1.1 trillion and receipts falling, the funding gap in the first nine months of the current fiscal year soared 267 percent compared to a year earlier, hitting $2.74 trillion, Treasury said.

“More than half of this increase was due to a $511 billion increase in Small Business Administration budget outlays, primarily for the Paycheck Protection Program (PPP).”

The payments were part of the unprecedented $2.2 trillion CARES Act, which provided aid for businesses of all sizes, as well as direct payment to US taxpayers and expanded unemployment benefits.

The weekly payments of $600 to help the millions laid off as the economy shut down have so far amounted to $171 billion.

Given the crisis caused by the pandemic, the exploding deficit came as no surprise. Treasury in May announced it was planning to borrow a record $3 trillion in the April-June period to fund the relief programs.

And the department said Monday that further cash expenditures “for loan forgiveness under PPP will occur in subsequent months.”

In June 2019, US government spending was just $342 billion, and the deficit for the October 2018-June 2019 period was only $747 billion, Treasury said.

Meanwhile, the administration is working with Congress on a new aid program that would likely extend some of the jobless benefits, but inevitably would add to the deficit.

“Everybody agrees that it was the proper role of government to provide income support and enhanced unemployment compensation to people impaired by the shutdowns and the pandemic,” said Mickey Levy of Berenberg Capital Markets.

However, he noted the debate over workers whose unemployment payments are higher than the salaries they received prior to the pandemic.

“Concerns that this may distort labor markets and deter people’s desire to go back to work, as well as the impact on government finances, will play a key role in the negotiations.”