Dreaded financial redline approaches: U.S. debt could exceed GDP within 2 years
'Long story short, debt was already really bad. This is going to make it much, much worse': Committee for a Responsible Federal Budget
March 31, 2020 - 11:29pm
The new $2 trillion coronavirus federal spending package adds so much to the national public debt that it could exceed the entire U.S. economy within a couple of years, according to the nonprofit Committee for a Responsible Federal Budget.
“Long story short, debt was already really bad,” says Marc Goldwein, a vice president and policy director for the group. “This is going to make it much, much worse.”
The $2 trillion in spending was needed to shore up the U.S. economy during the pandemic. Still, Goldwein says the resulting, increased debt continues to put the U.S. on an unsustainable economic path.
“We’re likely to have debt larger than the economy within a couple years and maybe even less – that’s not sustainable in the long run,” he said Monday on a conference call with reporters.
The value of the entire U.S. economy in 2020 is now projected at $21 trillion, compared to the national public debt of $17.5 trillion.
The Treasury Department defines the national public debt as “all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities.”
The total national debt of $23.5 trillion already exceeds the total value of the U.S. economy.
Goldwein said the national public debt was before the coronavirus stimulus spending projected to exceed the size of the entire U.S. economy by 2031.
He couldn’t give an estimate about when that debt will exceed the size of the economy but said he “would not be surprised” if the situation happens in the next two years.
One underlying concern is that so much of the U.S. debt is owned by foreign countries. Japan holds the most, followed by China, according to the most recent Treasury Department data.
In addition, repaying the debt, at least over the short term, will be more difficult because so many Americans are jobless as a result of coronavirus largely shuttering the U.S economy and won’t be paying payroll taxes, Goldwein says.
He also predicts that Congress will pass a fourth stimulus package, similar to the $2 trillion measure, if the public health threat from coronavirus is not under control within two months and argued such efforts have only so much impact.
“There is no amount of deficit financing that can restore the economy to where it was before,” he said. “As we’re telling people, ‘Stay in your homes, don’t go to stores,’ the economic production and consumption just won’t exist.”
Lawmakers are already previewing what could be included in another stimulus.
Goldwein, a former senior budget analyst on Congress’ Joint Select Committee on Deficit Reduction, known as the Super Committee, also criticized lawmakers for what he considers their failure to reduce the deficit during good economic times, including low unemployment.
“In the last five years, when the economy was good, we should have been reducing deficits,” he said. “We should have been reloading our guns. Instead, we cut taxes, we increased spending, we cut taxes again and we increased spending again.”
He also speculated Medicare, Highway and Social Security trust funds could be depleted in 10 years as a result of the coronavirus spending.
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