The United States is deeply in debt. The Covid-19 only accelerated this trend. After nearly 2 years of the Covid-19 pandemic playing out in the country, the government has spent trillions simply to mitigate the impacts of its own pandemic response, in addition to whatever debt the government accrued running its various programs.
In a recent op-ed for the Peter G. Peterson Foundation, senior fellow at the Manhattan Institute, Brian Riedl, wrote at length on what he calls “the early stages of the largest long-term government borrowing spree in modern history:”
Washington ran $6 trillion in deficits during the past two years of pandemic and recession, and is projected to run $12 trillion in baseline deficits over the next decade. Rather than pare back this borrowing, President Biden and Congressional Democrats are hoping to enact $6 trillion in additional debt.
While the Biden Administration just recently had their hopes dashed on the “Build Back Better” appropriation bill, eliminating part of this exorbitant spending spree (for now), if Democrats do get their way, Riedl notes that the debt held by the American public could balloon to $42 trillion in the next decade. The debt held by the public before the pandemic was $17 trillion.
Currently, the national debt sits at roughly 100% of GDP. Those in government who argue that this hasn’t greatly strained the economy believe that the answer is to simply keep spending and spending.
In current estimates, federal debt rises from 102 percent of GDP in 2021 to 195 percent in 2050…
This means in three decades the amount of debt being serviced by the taxpayers will equal roughly twice as much as what the nation is producing on a yearly basis-Brian Riedl points out the astronomical cost of simply paying interest in the years to come:
At that point, interest on the national debt would be the largest federal expenditure, consuming nearly half of all tax revenues. And rather than level off at this higher level, the debt is projected to continue accelerating rapidly in the years thereafter.
The best case scenario for the American taxpayer, in Riedl’s opinion, is if the current historic low interest rates from the Fed continue. If they were to rise to levels seen before 2008 or above, it could mean trillions of dollars in debt in interest alone.
If interest rates exceed the CBO baseline assumptions by even one percentage point, it would add $30 trillion in interest costs over three decades. In that instance, the debt would rise to 243 percent of GDP, and interest costs would consume two-thirds of all tax revenues.
But if the tens of trillions of interest-owed isn’t mind boggling enough, the bill is soon coming due on retirement and other entitlement programs which are even more staggering:
Over the next three decades, CBO data show that Social Security will require $21 trillion in general revenues, and Medicare will require $46 trillion. Much of these costs will be financed by government borrowing, which itself will be responsible for $45 trillion in projected interest costs. Altogether, these Social Security and Medicare shortfalls (and the resulting interest expenses) will cost the Treasury $112 trillion over three decades — which matches the entire projected 30-year federal budget deficit.
So who will pay for this mountain of debt that the federal government will have at its doorstep in the years to come? Riedl argues that there will be little appetite among foreign interests to take on much of it, and if the Federal Reserve were to buy more, the specter of hyperinflation would be a real possibility.
It appears that the only viable path forward is reform.
Washington must get serious about reigning itself in and not committing trillions of dollars towards new programs when the ones they’ve enacted already aren’t fully paid for. If Congress does not show restraint in its borrowing moving forward, a financial crisis may be unavoidable in the near future.
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