On Thursday morning the CBO released a surprisingly upbeat assessment of Donald Trump's proposed budget, calculating that it would cut the cumulative US deficit by 30% over the next decade, preventing the US debt from spiraling out of control (even further). That. however. may be an overly optimistic assessment, especially following the release of the latest monthly budget data, which showed that not only did the US deficit surge to $90 billion, far above the $38 billion consensus estimate, and a "NM" compared to the $6.3 billion budget surplus in June of last year, but the US also saw the biggest one month outlay on record, at $429 billion, 33% higher than the $323 billion in outlays one years ago. What prompted this massive surge in outlays? The biggest reason for the outlier print is that according to Stone McCarthy, outlays increased by at least $54 billion relative to baseline because the Treasury revised up its estimates of the subsidy cost of housing and student loans it guarantees. The cost of those loans is treated in the budget on a present value basis, not a cash basis. Treasury periodically revises these costs. (It should be noted that the associated increase in outlays doesn't impact Treasury borrowing or debt under the debt limit.) If not for these special factors, Treasury would have reported another small surplus for June... however it did not. On the revenue side, things were just as bad with the US Treasury collecting only $338.7BN, just 9% higher than the $330BN in June of 2016. What makes the surge in the deficit especially surprising is that June is often a surplus month, as the Treasury receives large corporate and non-withheld individual tax payments in that month. One theory explaining the shortfall in revenues reflects taxpayers delaying the recognition of income in 2016, anticipating tax cuts this year. That revenue should eventually be recovered. About a third of the revision was on the outlay size, with a large chunk due to changes in the estimated subsidy costs described above. Based on the CBO revisions, we think the deficit for the fiscal year, which has three months left, will be in the $650 billion to $700 billion range. Combining these two means that YTD, the deficit jumped to $523.1BN vs $399.2BN last year. While many analysts had a deficit base case for fiscal 2017 at roughly $575BN (the year ends on Sept 30), the CBO recently revised its projection for the fiscal 2017 up by $134 billion to $693 billion. Most of the CBO revision reflects weaker than expected revenues. To summarize: what the unexpected surge in government outlays means is that quietly and mostly behind the scenes, the student debt bubble has begun to burst, and the Treasury is "provisioning" for it in real time, with all US taxpayers once again on the hook. Finally, since the $1+ trillion student loan bubble is expected to end up with discharges of 35% if not higher, it means that over the next several years, the budget deficit will be incrementally boosted by approximately $350 billion as America's taxpayers are once again taken to the cleaners, this time to bail out million of liberal arts majors who for one reason or another just can't pay back their student loans. h/t @SMRA