US budget deficit to expand to $4 trillion in case of recession — Guggenheim Securities

Guggenheim Securities Co-Chair Jim Millstein believes the US could face a “fiscal disaster” in case of a recession as the government looks to cut taxes significantly. 

The US budget deficit is now $2.4 trillion, or 6.4% of GDP. It could expand to $4 trillion in the event of an economic downturn, Millstein says. The current package of tax cuts proposed by Republican lawmakers suggests consistent GDP growth. During the recent recessionary periods, the US budget deficit increased due to lower tax revenues and higher spending, the expert notes.

A key House committee has approved President Donald Trump's tax and budget package. The US Joint Committee on Taxation earlier estimated the total cost of the bill at $3.8 trillion over the next ten years, Bloomberg reports.

Millstein notes that the yield of 10-year US Treasury bonds is rising due to the imbalance in the federal government’s finances and the significant budget deficit, which has to be financed. He expects such dynamics to persist.