Trump courts fate with ballooning deficit

THE US fiscal deficit is ballooning at a vertiginous pace as Donald Trump’s tax cuts whittle down federal revenues, forcing Washington to borrow epic sums on the global bond market at an increasingly delicate juncture.

The US Treasury revealed this week that it expects to issue $769bn (£587bn) of new debt in the second half of the year, far higher than expected just months ago. The surge in borrowing comes just as the Federal Reserve raises the pace of bond sales to $50bn a month under its policy of quantitative tightening, flooding the market with supply. Reduced stimulus from the European Central Bank and the Bank of Japan is slowly drying up what has until now been an almost inexhaustible source of easy money.

The US Treasury said the budget deficit this fiscal year will top $833bn. It is on track to blow through $1 trillion by 2020 – nearing 5.5pc of GDP – as the full effects of tax cuts combine with extra spending on infrastructure, pork barrel projects, and military rearmament.

It is courting fate for a country to run deficits on this scale so late in an economic expansion when the “output gap” has already closed and capacity constraints are ubiquitous. The stimulus has largely been wasted since the multiplier effect is blunted so late in the economic cycle. Yet the debt