Economy

The US debt is now projected to be larger than the US economy – CNN

Published

4 years ago

October 8, 2020

Even deficit hawks are urging a dysfunctional Washington and a chaotic White House to approve another round of badly needed stimulus to the tune of trillions.

“The US federal budget is on an unsustainable path, has been for some time,” Federal Reserve Chairman Jerome Powell said this week. But, Powell added, “This is not the time to give priority to those concerns.”

However, when the country eventually pulls out of its current health and economic crises, Americans will be left with a debt hangover.

On Thursday, the Congressional Budget Office estimated that for fiscal year 2020, which ended September 30, the US deficit hit $3.13 trillion — or 15.2% of GDP — thanks to the chasm between what the country spent ($6.55 trillion) and what it took in ($3.42 trillion) for the year.

As a share of the economy, the estimated 2020 deficit is more than triple what the annual deficit was in 2019. And it’s the highest it has been since just after World War II.

The reason for the huge year-over-year jump is simple: Starting this spring, the federal government spent more than $4 trillion to help stem the economic pain to workers and businesses caused by sudden and widespread business shutdowns. And most people agree more money will need to be spent until the White House manages to get the Covid-19 crisis under control.

The Treasury Department won’t put out final numbers for fiscal year 2020 until later this month. But if the CBO’s estimates are on the mark, the country’s total debt owed to investors — which is essentially the sum of annual deficits that have accrued over the years — will have outpaced the size of the economy, coming in at nearly 102% of GDP, according to calculations from the Committee for a Responsible Federal Budget.

The debt hasn’t been that high since 1946, when the federal debt was 106.1% of GDP.

“Debt is the size of the economy today, and soon it will be larger than any time in history,” CRFB president Maya MacGuineas said.

The problem with such high debt levels going forward is that they will increasingly constrain what the government can do to meet the country’s needs.

Spending is projected to continue rising and is far outpacing revenue. And interest payments alone on the debt — even if rates remain low — will consume an ever-growing share of tax dollars.

Given the risks of future disruptions, like a pandemic, a debt load that already is outpacing economic growth puts the country at greater risk of a fiscal crisis, which in turn would require sharp cuts to the services and benefits on which Americans rely.

“There is no set tipping point at which a fiscal crisis becomes likely or imminent, nor is there an identifiable point at which interest costs as a percentage of GDP become unsustainable,” CBO director Phillip Swagel said last month. “But as the debt grows, the risks become greater.”

Let’s block ads! (Why?)

Source link

Economy

How will the U.S. election impact the Canadian economy? – BNN Bloomberg

Published

21 hours ago

November 4, 2024

Harry Miller

[unable to retrieve full-text content]

How will the U.S. election impact the Canadian economy? BNN Bloomberg

Source link

Economy

Trump and Musk promise economic 'hardship' — and voters are noticing – MSNBC

Published

4 days ago

October 31, 2024

Harry Miller

[unable to retrieve full-text content]

Trump and Musk promise economic ‘hardship’ — and voters are noticing MSNBC

Source link

Economy

Economy stalled in August, Q3 growth looks to fall short of Bank of Canada estimates

Published

5 days ago

October 31, 2024

Anne Joseph

OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.

Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries.

The manufacturing sector was the largest drag on the economy, followed by utilities, wholesale and trade and transportation and warehousing.

The report noted shutdowns at Canada’s two largest railways contributed to a decline in transportation and warehousing.

A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.

Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.

The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.

But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.

“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.

The central bank has acknowledged repeatedly the economy is weak and that growth needs to pick back up.

Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.

Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.

The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.

This report by The Canadian Press was first published Oct. 31, 2024

Source link