US Budget Deficit Explodes: Worst October On Record On Historic Surge In Defense Spending; 28% Of All Taxes Go To Pay Interest

September was not a terrible month for the US budget deficit; well it wasn’t great either, but at just a deficit of $27 billion in the last month of fiscal 2026, at a time when the US traditionally burns through 9 cash digits every month, it was relatively forgettable. 

One can’t say the same thing for October – the first month of fiscal 2027 – when all hell fiscal broke loose.

Let’s start at the top: at 2pm today the US Treasury published the latest, October, monthly budget deficit data, which was also the first month of fiscal 2026. 

It was, in a word, a shitshow. Total US receipts for the month were $369 billion, a blistering 8.8% drop from the $404 billion a year ago, with individual income taxes accounting for just $186 billion, or about half of the total, and the bulk of the balance coming from Social Insurance and Retirement receipts of $131 billion. 

What was especially concerning, is that government receipts have tumbled from a double digit growth pace for much of the post-covid period to just 1.1% on a trailing 12 month YoY basis. This matters because virtually every time TTM spending has turned negative, the US was already in or about to enter a recession.

If receipts (i.e., taxes) were bad, then spending was an absolute debacle. In October, total outlays were $773 billion, a 12% deterioration from the $688.7 billion spent a year ago. On a trailing 6 month basis, the number was $649 billion, the highest on record outside of the covid meltdown, and even with covid, it will only take another $50 billion increase in spending to hit a new record high number.

Putting receipts and spending in context, a chart of the trailing 6 months of government revenue and spending shows that the two trendlines continue to diverge with spending on pace to surpass the covid all time high, even as government revenue remains largely unchanged over the past 5 years!

The difference between the two, is of course, the US budget deficit, which in October was shockingly massive $404 billion, a huge deterioration from both last October’s $284 billion and certainly from September $27 billion deficit (which however was the result of some calendar discrepancies between the two months). As shown in the chart below, this was the highest October budget deficit on record…

… and since this was the first month of fiscal 2027, it was also the worst fiscal start to any year in US history!

What caused this shocking prolapse in the US fiscal picture in October? As noted above, tax receipts were bad (and about to push the US into a recession), but it was the record October surge in spending that was the culprit, and really juts two of the biggest drivers of government outlays. 

Number one: defense spending, which did something we can’t quite explain. Maybe you will have some more success in explaining why last month US national defense spending looked like… this:

The second, and just as important driver for the deficit spike, is one we have been discussing for the past 4 years: interest on the US debt. At $115.5 billion it was the worst October on record…

… if not the worst month ever, due to seasonal patterns which suggest that December – normally the worst month of the year – will be an absolute disaster. 

One thing is clear: just as October was the worst start of any year for US deficit spending, so the chart below indicates that this year, the US will spend about $1.6 trillion (if not more) on gross interest.

Unfortunately, that means that by year-end 2027, interest expense will be roughly neck and neck with US Social Security Spending (which as everyone knows is now insolvent) as the largest government outlay.

Finally, putting it into context, at $1.4 trillion spent on gross interest in the past 12 months, not only was the absolute number a record, but when expressed as a the percentage of government revenue, it was 28.2%, also the highest on record.

In other words, more than 28 cents of every dollar collected in taxes now goes to pay just the interest on US debt.

And somehow, even with the Fed set to restart debt monetization in the next year, not to mention “NOT QE” later this month…

… people are still selling their gold, silver and crypto as if there is any hope that this time the Titanic won’t sink.