Debt and Deficits

America's Long-Term Debt Crisis Is Now a Short-Term Problem

Even in a healthy economy, rising debt and deficits posed challenges. The current crisis has magnified those problems.

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When the Congressional Budget Office (CBO) examined the nation's long-term fiscal state last year, it offered this dour assessment: Federal debt levels were on track to reach their highest levels since shortly after World War II. On the current trajectory, "growing budget deficits would boost federal debt drastically over the next 30 years," pushing debt to levels that were "the highest in the nation's history by far." Interest payments were set to spike, tripling over the next several decades, and exceeding the total amount of all discretionary spending. Over time, debt service would essentially become its own massive federal program.

Even under favorable scenarios, in which productivity growth remained steady and interest rates remained low, debt levels would continue to rise and rise. "The prospect of such high and rising debt poses substantial risks for the nation and presents policymakers with significant challenges." Among the risks and challenges: "High debt might cause policymakers to feel restrained from implementing deficit-financed fiscal policy to respond to unforeseen events." Here is my thinking face emoji.

What the nonpartisan congressional budget analysts were saying, in their own carefully antiseptic language, was that even if things went pretty well for the economy, the continued growth of federal debt was going to be a big problem. A crisis was brewing, perhaps not immediately, but in the long term.

You may have noticed: Things have not gone well.

As COVID-19 spreads, the American economy is in the midst of the largest freefall in at least a generation, perhaps the most devastating since the Great Depression. Joblessness is at record highs, and financial analysts are predicting that the economy will end up shrinking by as much as 40 percent during the second quarter this year. A sharp drop in health care spending, as people delay elective surgeries and other non-emergency care, has alone managed to trim several points from the gross domestic product. No one has any clear sense of how or when this will end. 

As the economy has tanked, Congress has responded with a series of aid packages totaling nearly $3 trillion, all of which have been deficit-financed. This year's budget deficit is expected to come in somewhere around $4 trillion, nearly the size of last year's entire federal budget. In April, the U.S. posted its highest monthly budget deficit ever, at $737.9 billion. In 2016, the final year of Barack Obama's presidency, the annual deficit was $585 billion. In a single 30 day period, the U.S. government ran a bigger budget deficit than any one year outside of the Great Recession and its aftermath. 

And this year isn't over: Yesterday, Democrats unveiled a new $3 trillion relief package, offering billions in bailout funds to state budgets and the post office, along with another round of stimulus checks for most households. Progressives complained the bill wasn't large enough. 

The bill isn't expected to pass, however, at least not in its current form. And the reason why is something the CBO warned about: High debt levels appear to be causing policy makers "to feel restrained from implementing deficit-financed fiscal policy to respond to unforeseen events." Republicans in both Congress and the White House are balking at the price tag, in part because it would come on top of a debt and deficit outlook that was already worrisome. 

I have criticized the major fiscal stimulus bills under both the Bush and Obama administrations. But there is at least a case to be made that this crisis, which is different in both scale and kind from previous economic upheavals, is one that actually justifies some amount of emergency deficit spending, if not the particular bills that Congress has passed: When governments are forcing businesses to close in response to an unforeseeable exogenous event, as well as forcing individuals to stay home from work, some form of recompense is probably justified. It is notable that the Committee for a Responsible Federal Budget, one of the organizations most single-mindedly focused on national debt reduction, has backed deficit spending in this instance. 

Yet the relief effort is running up against legislative skepticism—a political constraint imposed by the high debt and deficits that were already locked in before the crisis began. 

I don't mean to endorse the House Democrats' bill, which is at least in part an effort to use the current crisis to push the party's pre-crisis priorities. And there are plenty of legitimate criticisms of the relief legislation that has already been passed; the contradictory design and dysfunctional implementation of the previous relief bills should give anyone wishing for trillions more real pause. 

There's blame to go around for the fiscal mess: Republicans shoulder much of the responsibility for the preexisting conditions of the nation's fiscal health, although Democrats have certainly contributed plenty over the years as well. But partisan blame is, at the moment, somewhat beside the point. 

It is certainly possible that additional deficit-financed relief legislation will pass in the coming months. But the current challenge is real: Decades of rising debt and deficits, even under thriving economic scenarios where persistently high deficit levels are unjustified, have left lawmakers across the aisle less willing or able to respond, exactly as budget-watchers have predicted. The debt is not just a drag on the economy. It's a burden on crisis response, a limitation on the government's ability to take action in a time of need. 

For years, the risks associated with long-term fiscal imbalances have mostly been seen as potential threats down the road rather than real, immediate challenges. But those risks have now materialized dramatically as short-term challenges. The long-term problems are exacerbating our near-term crisis. 

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  1. As long as the endless spending is Blessed by The Donald, then all is well and swell! The Faithful will dismiss any criticism of such spending as just so much “Orange Man Bad”.

    Government Almighty makes goods and services appear by Magic Money! Government Almighty bless Government Almighty, so long as Dear leader approves of it!

    1. No one here ever said that shit. You should just get it over with and kill yourself.

      1. “Libertarians” for worshipping suicide, Jimmy Jones, and Satan… How’s that workin’ for ya?

        Shitsy Shitler, drinking Shitsy Kool-Aid in a spiraling vortex of darkness, cannot or will not see the Light… It’s a VERY sad song! Kinda like this…

        He’s a real Kool-Aid Man,
        Sitting in his Kool-Aid Land,
        Playing with his Kool-Aid Gland,
        Has no thoughts that help the people,
        He wants to turn them all to sheeple!
        On the sheeple, his Master would feast,
        Master? A disaster! Just the nastiest Beast!
        Kool-Aid man, please listen,
        You don’t know, what you’re missin’,
        Kool-Aid man, better thoughts are at hand,
        The Beast, to LEAVE, you must COMMAND!

        A helpful book is to be found here: M. Scott Peck, Glimpses of the Devil
        https://www.amazon.com/exec/obidos/ASIN/1439167265/reasonmagazinea-20/

        Hey Shitsy Shitler…
        If EVERYONE who makes you look bad, by being smarter and better-looking than you, killed themselves, per your wishes, then there would be NO ONE left!

        Who would feed you? Who’s tits would you suck at, to make a living? WHO would change your perpetually-smelly DIAPERS?!!?
        You’d better come up with a better plan!

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        2. I didn’t even read your nonsense. It’s just more proof it’s time for you to kill yourself. Just do it.

          1. Come over here and make me, you evil puke-punk! You make me want to barf, death-worshipping maggot!

      2. The DEBT is not the DEFICIT. And the DEFICIT is not the DEBT. They are separate problems.

        Government BORROWING drives up the debt, not government SPENDING.

        The solution to our debt problem is simple: STOP ISSUING DEBT-BASED MONEY! Begin issuing pure “unbacked” fiat money to fund the deficit, rather than going further into debt. The inflationary impact of unbacked dollars is no worse than the inflationary impact of the same amount of debt-backed dollars. Issuing unbacked dollars will halt the increase in the national debt and its crushing $479 billion in annual interest. Paying off part of the maturing debt each year and rolling over the rest will eventually bring the national debt (and its taxpayer-financed interest payments) down to zero. See http://www.fixourmoney.com .

        1. You.
          Are.
          Full.
          Of.
          Shit.

    2. Are you really that stupid?
      The Federal government was in $23 Trillion in debt before this started.
      Congress spends the money. Both parties, both Houses made these bills, reconciled them, and put the final bill on Trumps desk. So what President is going to veto a bill with that kind of support? It would be instantly overridden, and TROLL fools like you would be screaming Trump doesn’t care about people and is killing people.
      No one believes your crap.

      1. I want my MTV!
        Money fo’ nothin’,
        An’ your chicks for free!

        MTV, had it for a while now…
        Money for nothing? Yet MORE of it, blessed by Orange Man Bad! And OK by you!
        Chicks-for-free socialism OK by you also, OK for Dear Leader to sign, if veto-proof-passed by the House and Senate?

        Chicks-for-free socialism looks like THIS!

        Here, let me portray for you, my idealistic utopia where we all have “freedom from sexual want”, or, the right to demand your fair share of free sex from the pretty passers-by. An ideal redistributionist society, if you will… As I put on my tin-foil hat, I foresee a future USA where you will have the right to have intercourse (social and/or sexual) with any passer-by that you demand it from, except, of course, the “public servants” who are too busy enforcing your rights, to have intercourse with you. AKA, they are too busy fucking you over, to let you fuck them! And we will have to sneak, under cover of darkness or fog or smog, from house to house, to have any kind of voluntary social or sexual intercourse, for fear of having “freedom” foisted upon us, if we walk about openly… Or maybe we put on a REALLY ugly, slime-dripping disguise, and take our chances… … This LOVERLY idea brought to you for FREE by the Church of Scienfoology. To learn more about Scienfoology, please see http://www.churchofSQRLS.com

  2. At $60 trillion a year in U.S. consumer spending, an across the board 10% federal sales surtax for one year would cover the ChiComVirus spending. Of course, like the Johnstown Flood Tax, the 10% surtax would go on forever .

    1. 1) The US GDP is like $21 Trillion. WTF are you getting 60?

      2) About 30% – 40% of GDP is Local, State and Federal spending, so actual consumer spending that you could legitimately tax is something like $13 Trillion. So your 10% surtax would get maybe 1.3 trillion?

      1. Hmmm…I realize you said “Consumer Spending” and not “GDP”. I am sorry about that. I don’t get what the difference is between Consumer Spending and GDP, other than I guess it means that GFP must somehow do aggregation of multiple transactions that consumer spending counts individually?

        1. “<a href="https://www.investopedia.com/terms/g/gdp.asp&quot;?Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.”

          There isn’t $trillions in consumer spending that would not be included in GDP.

          1. Fixed link

            GDP

            1. And yet if you go to the government BEA site, you can see right there that we get like 13 trillion in consumer spending every quarter. The only thing I can think is that GDP captures the final value of the goods and services, while “Consumer Spending” captures the same good/service being transacted multiple times and sums up every dollar changing hands?

    2. $60T a year in consumer spending? Let’s see, roughly 300M people in the US. $60T / 300M is $200K per person.

      Naw. Go peddle that fakery to the NYT. Or AOC, she needs some magical figures to make up her GND taxes.

      1. That is flawed logic. Just because not every American has $200k to spend annually, doesn’t mean that others aren’t spending more than that amount. Although I would like to see the source for the $60T figure.

  3. ” Republicans shoulder much of the responsibility for the preexisting conditions of the nation’s fiscal health, although Democrats have certainly contributed plenty over the years as well. But partisan blame is, at the moment, somewhat beside the point. ”

    lmao while factually true this is just such a laughable untruthful claim.

    1. It’s especially hilarious when you consider that MacAdoodle is always the first and loudest to scream hysterical bloody murder if any republican ever suggests cutting Medicare or Medicaid by one dollar. He’s one of the most dishonest pieces of shot here.

      I also love his description of the economy as “tanking” and being in “freefall”as if that happened completely naturally on its own as part of the basic cycle.

  4. It seems like just last month Suderman claimed the trillion Trump spent proved Republicans are just as bad on spending as Democrats. Oh wait, it was!

    Now the Dems prove again what reasonable people don’t try to hide: that no matter how bad a Republican is Democrats are far worse.

    1. It’s hilarious we have a tow ridiculous fiscally undisciplined completely batshit crazy drunken sailor in port and another a 20 year old chick with a credit card who at least makes the minimum payments. He criticizes the one who actually makes the payments, because they should know better or something. In a democracy the extremist drive the conversation and you have to compromise.

  5. Shorter Suderman Dems stimulus necessary well meaning good Repubs necessary bad meaning bad.

  6. There’s blame to go around for the fiscal mess

    We’re All In This Together™

    1. It’s funny how people say that right after asserting that only their opinion matters.

  7. But there is at least a case to be made that this crisis…is one that actually justifies some amount of emergency deficit spending,

    Emergency deficit spending might should be on the table but it should be a last resort, behind a massive effort to undo all of the policies that created the current situation. The virus certainly didn’t.

  8. “Even in a healthy economy, rising debt and deficits posed challenges. The current crisis has magnified those problems.”

    The “crisis” is largely self-inflicted; you don’t shut down 3/4 of the economic activity and hope things will just cruise right along.

    1. Indeed. It was a ad response.

    2. It’s still a crisis. Act of Government is more common than Act of God.

  9. Suderman’s employment has turned into a much longer term problem than anyone can reasonably make excuses for.

  10. Yep, we have big problems. Biggest one maybe an incompetent President. What his current idea a payroll tax cut. So for the people who are working cut their taxes and they spend it on nothing. Right now we are limited to groceries, home improvement and yard work. And if you are out of work you get nothing.
    We need a Democrat for President. History tells us that economic recoveries usually (not always) require a Democrat in the White House. It would be better if the Republicans held the Senate, but as things now look they could lose the whole enchilada. A Democratic WH, House, and Senate is bad, but they could do no worse then the last time Republicans held all three.

    1. Democrats in the houses destroy teh economies under republican presidents so that they can claim to fix it. Obama never fixed the economy and clinton was luckily controlled by republicans for a while

    2. Democrats must be eradicated if the country is to survive in any way as a constitutional republic. Best that committed democrats just leave peacefully.

    3. History tells us that economic recoveries usually (not always) require a Democrat in the White House.

      Is that the Democrat who elongated the Great Depression by most of a decade or the one which presided over the slowest recovery in history?

      Common thread: both believed they could change business requirements at their whim without depressing economic growth. I can still hear the echo of “I can’t be responsible for every under-capitalized business in the country”.

      1. Pick either the fact is the economy got better. Listen I am not suggesting cause and effect. I am simple reporting history. Generally speaking it has been Republicans coming in on good economy and leaving them worse, while Democrats come in on troubled economies and leave them in better shape. You can probably find exceptions, but I don’t think you can prove the assertion incorrect.

        1. perhaps, but i think a lot of that is built on the Clinton-Bush period and even trivial investigation shows Clinton left bush a ticking bomb (even if Bush did proceed to pour gas on it)

          Or should be believe Clinton was some economic wizard because he was lucky enough to be president while the dotcom bubble inflated but not when it popped?

          1. Or should be believe Clinton was some economic wizard because he was lucky enough to be president while the dotcom bubble inflated but not when it popped?

            This is exactly what left winger arguments boil down to, although to be fair they’re almost universally too ignorant to understand that.

          2. Democrats have successfully memory holed the fact the dot com bubble burst on Clinton’s way out.

        2. Pick either the fact is the economy got better.

          Yes, it got better at a worse rate than ever before. So were we to not have them we would have gotten better faster. I’ll go with that.

          Listen I am not suggesting cause and effect.

          Of course you did:
          History tells us that economic recoveries usually (not always) require a Democrat in the White House.

          Without causation “require” cannot be correct because it would not matter.

          1. To be fair… it isnt always apparent he understands the meaning of words he uses.

    4. The great thing about the internet is that it is impossible to determine whether any given comment was made in earnestness or out of sarcasm. Ideas, values and personalities in this world span such a wide range that, for any given statement, there will be at least one person willing to utter it in earnestness and at least one willing to do so out of sarcasm. Since anyone can post online, you can never know for sure which group the commenter is in, you can only make an educated guess based on context.

  11. Yes the deficit is bad and shame on both parties and since both parties have lied about caring about it i don’t see any real solutions until there is a collapse. No one wants to give up on any benifits and the rest of don’t want more taxes since they won’t go to reduce the deficit and I already can’t afford my taxes now

  12. >>But there is at least a case to be made that this crisis, which is different in both scale and kind from previous economic upheavals, is one that actually justifies some amount of emergency deficit spending

    okay to cave to Playbook (D) this time because virus?

    1. bailing out a failing airline company is of PARAMOUNT importance to the general welfare don’t you know?

      1. lol and then AA raised prices on bags. again.

  13. Nope it’s still a long term problem. The short term is about increasing debt and printing currency. Ultimately the long term involves debt service with higher interest rates and underfunded liabilities in excess of $200 trillion. But that problem is something future congresses will have to deal with. They won’t until it’s far too late. By then we’ll be under an autocratic regime resembling China.

    1. This government induced economic damage going on now may give us deflation first. Too soon to tell.

  14. the sooner we can get to the point where the federal budget is mostly spent on debt servicing the better.

    it’ll be a great day when they can no longer afford to inflict upon us the ministrations of the DEA, SEC, FDA, FCC, TSA, FBI, BATF, ICE, FTC, and a host of others.

  15. i’m curious how much the calculus of this is “spend as much as possible now so this time next year we can say ‘look how much President Biden slashed the deficit in only a few short months!”

    a vacuous statement the human mozzarella sticks that make up the bulk of the electorate will happily swallow

    1. But that requires Biden to win and the Dems are doing their level best to throw this election, covid or no covid.

    2. That is never part of the calculus. I hate orange man, and the republicans can be heartless, but they sometimes pretend that money isn’t just waiting to be printed. Sometimes they hold a line, and say, we just can’t pay for everything… The Democrats want to get all their pet projects approved while these aid packages are getting pushed through and will increase spending more than Trump ever did if Biden wins. Democrats never plan on spending money now and then reducing what they spend later. That never happens. Except for President Clinton, a Democrat, worked with a Republican Congress during the 90s when the economy was good, and they balanced the budget. However, neither party seems to view that as important anymore.

    3. mozzarella sticks…FUNNY!

  16. “But there is at least a case to be made that this crisis is one that actually justifies some amount of emergency deficit spending”

    BULLSHIT!!

    1. agreed…BULLSHIT!

  17. For how many days, now, has Reason just avoided discussing the transcript releases? The readership genuinely needs more COVID articles?

  18. Peter Suderman complains about the size of the federal debt, but nowhere does he claim that the federal government can’t afford to support it. The reason he doesn’t say it is because it isn’t true.

    The U.S. government, being uniquely MONETARILY SOVEREIGN, has the unlimited ability to create its own sovereign currency, the U.S. dollar. It never can run short of dollars.

    Even if total federal tax collections were $0, the federal government could keep spending forever.
    (The state, county and city governments, being monetarily NON-sovereign, still need taxes.)

    And the so-called “debt” isn’t even real debt. It is the total of deposits into T-security accounts. The federal government could pay off the entire “debt” simply by returning the money in those accounts.

    The so-called “debt” has increased 55,000% in the past 80 years of economic growth, and the only recessions in that period have come when “debt” growth has slowed. (The recessions were cured when “debt” growth increased.

    The whole “debt problem” is a phony, meant to keep you from asking for more benefits from the federal government. The rich know this, which is why they get all the benefits and the rest receive the absolute minimum.

    1. “…The whole “debt problem” is a phony, meant to keep you from asking for more benefits from the federal government. The rich know this, which is why they get all the benefits and the rest receive the absolute minimum.”

      You.
      Are.
      Full.
      Of.
      Shit.

      1. Thank you, Sevo, for your intelligent comment. Shall I assume you are a Libertarian?

        1. Mr. Mitchell – you seem to be one of the MMT crowd. That’s not all bad – we do indeed have a fiat currency system. I would only suggest you include in your description of our system the real risk: harmful inflation. I happen to believe that most of the growth in our money supply comes from the private banking system – loans create deposits – but it is indeed true that the federal government can create the money it needs (assuming Congress doesn’t stand in the way by foolishly refusing to raise the debt ceiling). The truly ugly type of inflation is (of course) hyperinflation. Since 1900, no instance of hyperinflation was due to high levels of government debt alone. There has always always been another severe, exogenous event, such as losing a war, a collapse in production, regime change, rampant government corruption, or ceding monetary sovereignty via a pegged currency or foreign denominated debt. My concern in the relative near term is that after this Coronavirus crisis passes, our incompetent government will make so many big errors that the world will lose confidence in our system and begin to reject our currency – causing interest rates in jump significantly.

        2. “Thank you, Sevo, for your intelligent comment. Shall I assume you are a Libertarian?”

          Thank you for your idiotic post, RM. Shall I assume you’re a fucking lefty ignoramus?
          You.
          Are.
          Full.
          Of.
          Shit.

    2. https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary_episodes

      As it will be in the future, it was at the birth of Man —
      There are only four things certain since Social Progress began —
      That the Dog returns to his Vomit and the Sow returns to her Mire,
      And the burnt Fool’s bandaged finger goes wabbling back to the Fire —
      And that after this is accomplished, and the brave new world begins
      When all men are paid for existing and no man must pay for his sins
      As surely as Water will wet us, as surely as Fire will burn
      The Gods of the Copybook Headings with terror and slaughter return!

    3. Are you running a cloward-piven on someone?

  19. https://dewitani.com/
    As it will be in the future, it was at the birth of Man —
    There are only four things certain since Social Progress began —
    That the Dog returns to his Vomit and the Sow returns to her Mire,
    And the burnt Fool’s bandaged finger goes wabbling back to the Fire —
    And that after this is accomplished, and the brave new world begins
    When all men are paid for existing and no man must pay for his sins
    As surely as Water will wet us, as surely as Fire will burn
    The Gods of the Copybook Headings with terror and slaughter return!

  20. if true this is just such a laughable untruthful claim

  21. When are they really going to make an effort to try to lower the deficit? This cannot be good for the US or the world ecocnomy for that sake in the long rung. When the government of Sweden did this mistake due to heavy lending and overspending in the public sector in the 80-ies they ran into the wall 1991. The huge deficit made the swedish krona to go down a lot and it took the economy 10-15 years to recover. When the deficit go up in good years, what is going to happen when the economic growth go down?

    1. When are they really going to make an effort to try to lower the deficit?

      When it’s literally impossible to finance more things with debt. It is very clear they are totally and completely irresponsible. Like a child with candy, they will gorge until they get sick, then perhaps do it some more.

      1. “They” in this case are primarily the voters.

        1. TY for ‘arete’. Nice.

  22. we were all witness to the week that 99% of the hacks in DC became born again keynesians. they ALL tripped over each other racing to give prove that DC is your daddy. trump and his pals (if he has any) got ROLLED by lifer pols who know better than him how the game is played.

    hell, the first round was rushed out so fast they didn’t even have time to make up a bullshit acronym. BUT DON’T WORRY…the next one is called HEROES because all the folks that lost their job when we closed down their employers business are heroes.

    the deficit has now been blow out of this solar system and is on its way out of the galaxy. the repubs were complicit. we are chimps and deserve those we vote for

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