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U.S. budget deficit hits record $3.1 trillion

The U.S. federal budget deficit hit a record high $3.1 trillion, which was driven up by government spending on households and businesses. Yahoo Finance’s Rick Newman joins the Final Round to discuss the details.

Video Transcript

SEANA SMITH: Rick, I want to get your thoughts on the figure that we got out today. And that's the fact that the budget deficit, the US budget deficit, reaching a record $3.1 trillion. Of course, this was driven by the government's spending, just in terms of our fight here against the pandemic. But to put it in perspective for our viewers, it's more than triple what we saw in 2019 just a year ago.

Do you foresee this changing at all, just in terms of what-- I guess in the debt path at all, in terms of after the election, no matter who wins? Is this something that would be addressed under Trump, although probably not, or Biden? Or does it really matter?

RICK NEWMAN: Well, it has to change at some point. But nobody knows what the breaking point is here. And we should point out, the budget hawks said we would be in some kind of fiscal crisis before the debt got to this point, and they've continued to be wrong.

Now one of the reasons I think they have not been exactly right is, interest rates have ended up being way lower than anybody guessed. And that's because the Federal Reserve wants them to be lower.

But this number, $3.1 trillion in the fiscal year that ended in September-- that is not a surprise. Everybody knew it was going to be huge because of the stimulus bills. But just for context, the largest deficit prior to this year since World War II was a mere $1.4 trillion in 2009. So now we're at $3.1 trillion, more than double, the figure from the last recession.

And I think the most distressing thing about it is, the deficit was actually getting worse, not better, before COVID arrived. And that's largely because the Trump tax cuts from 2017 just created higher deficits, which is exactly what the Congressional Budget Office said it would do. So the situation was gradually getting worse, and then, boom, there's this explosion of debt with COVID.

So if we have another big stimulus plan next year, we're going to have another giant bogey in terms of the deficit. That is probably as far as we can go, and then we're going to have to start dealing with it.