Federal Debt Goes Viral
With another $10 trillion on tap, our national debt is spiraling out of control.
The coronavirus outbreak has small businesses facing a dark future and millions of Americans struggling to pay their bills. Fiscal discipline, for one and all, is more critical now than ever.
Clearly, our elected officials never got the message.
State governments flipped a switch and shuttered their economies this spring, knowing Uncle Sam would bail them out. Indeed, based on recent actions, the federal government seems fine with printing trillions in Monopoly money to keep the states solvent. But at some point, one wonders if anyone in DC is paying attention. If so, it isn’t likely to be President Donald Trump, whose administration ran up nearly $4 trillion in debt before COVID-19.
Surprisingly, it was Senate Majority Leader Mitch McConnell who floated the idea this week that states should have the option to file for bankruptcy.
Seems reasonable. It’s one thing to ask the federal government to cover virus-related financial burdens, but many states were already deep in the red due to generous public pensions or other reckless spending.
Of course, some states are averse to the idea of responsible budgeting. New York Democrat Gov. Andrew Cuomo, for example, called McConnell’s suggestion “politically repugnant.”
That’s rich. How dare the Senate majority leader ask states to keep an eye on their spending. Then again, this is the same Cuomo who said people worried about losing their jobs during the shutdown should consider becoming essential workers.
But while McConnell rightly calls out states for their mismanagement, he and other political leaders on Capitol Hill ought to look in the mirror. The federal debt has long been out of control, and spending another $10 trillion on coronavirus cleanup isn’t going to help.
The Committee for a Responsible Federal Budget reports (emphasis in the original) that “under current law, budget deficits will total more than $3.8 trillion (18.7 percent of GDP) this year and $2.1 trillion (9.7 percent of GDP) in 2021. We project debt held by the public will exceed the size of the economy by the end of Fiscal Year 2020 and eclipse the prior record set after World War II by 2023.” (Debt held by the public is a subset of the total federal debt.)
The committee says that’s assuming no further spending legislation is forthcoming to deal with the crisis. Moreover, “The projections also assume the economy experiences a strong recovery in 2021 and fully returns to its pre-crisis trajectory by 2025. Assuming a slower and weaker recovery (but no changes in law), we estimate debt would grow to 117 percent of GDP by 2025.”
In other words, the U.S. will be a superpower with a $20 trillion economy that can’t pay its bills.
Sure, we can just pay the interest. But the Congressional Budget Office predicts interest on the debt will consume more than 10% of federal spending by 2030. The entitlements of Social Security, Medicare, and Medicaid consume most of what’s left. Throw in spending for the nation’s defense, and these unplanned coronavirus outlays make our financial shell game much more serious.
All this sounds ominous, yet Congress and the president seem content to kick the can down the road. The Left has effectively stifled any talk of reforming our ruinous entitlements as “pushing grandma off the cliff.” And let’s be honest: Most Americans seem utterly unconcerned about the national debt.
But as our own Arnold Ahlert wrote a few years back, at some point the U.S. dollar will be supplanted by another currency. That’s when the real trouble begins.
Perhaps this coronavirus crisis will shake up the political establishment. Then again, maybe the current crisis isn’t enough. We may need to hit our financial rock bottom first, but that may happen sooner than anyone realizes.
Update: After publishing, the CBO issued its projection for this year’s deficit: $3.7 trillion. And the Washington Examiner’s Phil Klein reports, “Now, CBO expects the public debt to hit 101% of GDP by the end of the year. The only time in American history that debt has been higher was in the years 1945 and 1946, when it hit 104% and 106%, respectively, as a result of wartime spending. The actual number for 2020 is likely to be worse, however, because the CBO does not account for future spending bills that Congress is likely to pass in response to the crisis. In addition, CBO assumes a 75% drop in social distancing during the second half of the year, which could be optimistic.”