Under pandemic pressure, America’s debt crisis is worsening

U.S. government debt will eclipse the size of the entire U.S. economy next year. According to the Congressional Budget Office, the debt is projected to expand from 79% of GDP in 2019 to 104% in 2021.

This surge is not sustainable.

It represents the largest U.S. government debt since World War II. The analysis by the CBO was released on September 2 and was the first to include the effects of the coronavirus pandemic and resulting economic crisis. The 2019 budget hammered out by President Donald Trump and the Congress comprised a deficit of over $1 trillion. The effects of the pandemic and the related economic wreckage have substantially worsened what was an already unsustainable budget outlook.

According to the nonpartisan Committee for a Responsible Federal Budget, all the major government trust funds will exhaust their reserves in the next 11 years, including Social Security and Medicare. Outlays are rising in the coming years resulting from increased spending on an aging population, rising health care costs and interest due on rising amounts of debt. This means those programs will be insolvent.

The budget deficit will climb to a record $3.3 trillion in fiscal year 2020, more than triple the shortfall 2019. The current COVID-19 crisis will substantially depress revenues and increase spending. The CBO has projected that federal revenues will total only 16% of theGDP in 2020.

Depressed revenues will also impact cities and states. And because they are required to maintain balanced budgets, these local governments will require higher tax revenues or cuts in many services or, more likely, both.

Despite these deficits, governments at all levels must continue to focus on the ongoing pandemic and the resulting recession – that is, on jobs, schools, civic services, foreclosures, and money for rent and food. Until we put the coronavirus crisis behind us, we cannot expect economic growth and higher budgets.

Both the Republicans and Democrats in Congress have ignored the pending crisis of rising deficits and national debt. This, despite the fact that in 2020we arrived at a point at which the deficit would be the largest since 1945. In 2017 the GOP approved tax cuts that would cost upward of $2 trillion in lost revenues over the following decade.

Under President Trump, individual income taxes and corporate taxes have dropped. Last year corporation taxes, resulting from the Trump tax cuts had dropped to below 12% from the previous effective rate of 21% – effectively compounding the national deficit. Economists call this a sugar high!

The Federal Reserve has created extremely low-interest rates. However, a spike in those rates, driven by market forces, could send the deficit soaring over the next ten years. The Fed would lose control of how it supports the economy. In fact, some reliable financial analysts speculate that the Fed may find a way to actually turn to buying stocks.

The Office of Management and Budget estimates that theU.S. debt will double from $16.8 trillion in 2019 to $33.5 trillion in 2030. That means thatU.S. debt will reach121% of the expected GDP of 2030. The projected doubling of the debt by 2030 should scare all of us— Congressional members, taxpayers and all Americans. If our national leaders fail to come together and recognize that our country is on an unsustainable path and they fail to move aggressively to stop irresponsible tax and spending policies, we are in peril. We risk further devaluation of the U.S. dollar, we risk a depression and we risk weakening of the dollar as the world’s dominant currency.