In June, the US Department of the Treasury revealed that the country’s national debt had exceeded $ 26 trillion for the first time in the nation’s history, as it continues to grapple with the economic fallout from the coronavirus pandemic.
The US debt has already reached its highest level since World War II and currently is equal to the size of the economy of the nation.
The CBO (The Congressional Budget Office) suggested that debt may exceed 100% of the U.S. gross domestic product (GDP) in the next fiscal year beginning Oct. 1, due to a strong financial response to the COVID-19 pandemic.
Overall, the pandemic has led to a situation where “there is a huge increase in public debt in most countries this year,” said Joseph Gagnon, principal investigator at the Peterson Institute.
“Tax revenue declines when companies close or shrink and the government spends more to subsidize workers and businesses. In the US, Trump’s 2018 tax cut already increased the deficit a little before the pandemic,” Gagnon noted.
Michael Pento, president and founder of Pento Portfolio Strategies, recalled that the ratio of U.S. national debt to GDP has soared to 136%, the highest since World War II.
“Another way of looking at US debt is that it has now skyrocketed to an incredible almost 1,000% of annual federal revenue,” he said, adding that the fiscal deficit for 2020 should be $ 3.3 trillion, which, according to Pento, makes the situation “even worse.”
“Therefore, not only is the decline in income reduced by the tremendous amount of debt, but the government is increasing this debt at a rate equivalent to 17% of annual GDP. In other words, the idea that this debt can ever be paid is ridiculous,” Pento said.
The analyst added that although the coronavirus pandemic has exacerbated waste in the US, “debt and deficits have been a problem [in the country] since the great recession of 2008.”
“Even in what some have recently characterized as ‘the largest economy in history’, deficits were rising a rate of a trillion dollars before the virus [outbreak]. The real problem is the fiscal and monetary madness in Washington, which has been adopted to perpetually inflate asset bubbles,” he said.
Brian Riedl, a principal investigator at the Manhattan Policy Research Institute, echoed Pento and stressed that America’s national debt, which amounted to $17 trillion in early 2020, “is expected to soar at the staggering $33 trillion by the end of the decade.”
“With purchases of foreign debt relatively stagnant over the last decade, it is not clear how domestic savings will finance this unprecedented increase in federal loans,” Riedl questioned.
The deficits that are here to stay
“Overall, the pandemic is expected to add $ 2.1 trillion to US debt in the next decade,” he predicted, as “much of the new revenue and spending losses are offset by savings in interest rates. lower interest on debt.”
The expert said that although the pandemic and subsequent recession will finally end, it appears that “the trillion-dollar deficits are here to stay.”
According to him, “the danger is that at debt levels of $ 33 trillion every one percentage point increase in the average interest rate paid by Washington will cost $ 300 billion in annual interest costs.” Riedl referred to what he described as “Washington’s insatiable borrowing needs,” which he said would “crowd out other investments and hurt growth.”
He concluded by adding that “these long-term unsustainable deficits ” will be Washington’s task and will come in the midst of its efforts to “end the pandemic and rescue the economy.”
The US Government has provided up to five trillion dollars in coronavirus rescue funds since March 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27 and included two trillion dollars, while the $3 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act was passed in May.