Bond investor Jeffrey Gundlach, the founder of DoubleLine Capital, reiterated his assertion that the U.S. is “on a suicide mission” by increasing its deficit while the Fed is raising interest rates.
Gundlach made the comments during a webcast on Tuesday afternoon shortly after the U.S. Treasury reported that the federal government ran a budget deficit of nearly $100.5 billion during October, an approximately 59% increase from the same month a year ago. October marks the beginning of fiscal 2019. The deficit is expected to move above $1 trillion this year.
Gundlach showed a chart highlighting an “unusual situation” of rising deficits amid rising interest rates.
“It’s very strange that we have a rising deficit so late in an economic expansion and what’s supposedly a good economy, and we saw earlier GDP is nominal at 5.5% year-over-year, and real is 3.0% so for the last year it has been a good economy,” Gundlach said. “It’s very bad that the deficit is rising.”
Like many others, Gundlach attributes the recent pop in economic growth to the growth in the deficit.
President Donald Trump has made many promises to the American people. One of them was his tax plan. He and his administration vowed tax cuts would lead to growth and pay for themselves, rather than add to the already ballooning deficit.
But that doesn’t seem to be the case. The latest reading from the Treasury Department showed the U.S. is sliding deeper into the red. After the country posted a $779 billion deficit for fiscal 2018, the deficit climbed to $100.5 billion in October. That’s a 60% increase from a year earlier as spending outpaced revenue growth.
The question facing lawmakers on both sides of the aisle is how to address the issue and steer the U.S. on a sustainable financial path. Part of the problem is the conflicting messages out of Washington.
“I think the average American is blissfully unaware of the scale and scope of the federal budget problem,” Douglas Holtz-Eakin, president of American Action Forum, said at Yahoo Finance’s All Markets Summit on Tuesday. “They were told for eight years under Barack Obama there’s nothing wrong that can’t be fixed by higher taxes. And they’ve been told for the past two years by President Trump there’s nothing wrong. Neither is true. There is something wrong. It needs to be fixed. They need to understand that because you can’t ask someone to start doing entitlement reform for no apparent reason. There will be a revolt. They need to understand what’s going on.”