WASHINGTON – Total U.S. national debt hit $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it struggles. with soaring prices and the prospect of higher interest rates.
The violation of that threshold, disclosed in New figures from the Ministry of Treasury, coming years earlier than previously expected as a result of the trillions of dollars in federal spending that the United States has deployed to combat the pandemic. That $5 trillion, which funds expanded unemployment benefits, financial assistance to small businesses, and stimulus payments, was financed with borrowed money.
Borrowing, which many economists see as essential to helping the United States recover from the pandemic, has left the country with a debt burden greater than the entire economy, past unprecedented levels of red ink. since World War II.
Some economists argue that the country’s large debt load is not unhealthy given the growing economy, low interest rates, and investors’ willingness to buy U.S. Treasuries, which gives They are safe assets to help manage their financial risks. Those securities allow the government to borrow money relatively cheaply and use it to invest in the economy.
However, the numbers come amid renewed concerns in Washington about the nation’s fiscal trajectory and a growing budget deficit, the gap between what the country spends and the revenue it generates. they bring. Those worries have stalled President Biden’s $2 trillion climate and safety net talks on a spending proposal, with Senator Joe Manchin III of West Virginia. quote “incredible debt” as a reason why he could not support the law.
The protracted pandemic has slowed the economic recovery, boosted inflation rates not seen since the early 1980s and raised the prospect of higher interest rates, which could further add to America’s fiscal burden.
“Reaching the $30 trillion mark is clearly an important milestone in a dangerous fiscal trajectory,” said Michael A. Peterson, executive director of the Peter G. Peterson Foundation, which advocates for deficit reduction. ours. “For many years before Covid, the US had an unsustainable structural fiscal path because the programs we designed were not fully funded from the revenue we made.”
Understanding inflation in the US
The total national debt represents debts held by the public, such as individuals, businesses and pension funds, as well as debts owed by one part of the federal government to another.
Concern has grown over debt and deficits in Washington after years of neglecting the consequences of big spending. In the Trump administration, most Republicans have ceased to be fiscal hawks and voted along party lines in 2017 to pass $1.5 trillion in tax cuts. along with increased federal spending.
While Republican lawmakers helped tackle the nation’s debt burden, they blamed Mr. Biden for putting the nation on a difficult financial path by funding his agenda. grandfather. After a protracted stalemate in which Republicans refused to raise the US debt limit, threatening a federal default for the first time, Congress finally agreed in December. to raise the nation debt limit of about $31.4 trillion.
In January 2020, before the pandemic spread across the United States, Congressional Budget Office It is expected that the total national debt will reach 30 trillion dollars around the end of 2025. Total public debt exceed total output of the US economy last year, a decade faster than forecasters had predicted. The nonpartisan office warned last year that rising interest costs and growing health spending as the population ages would increase the risk of a “fiscal crisis” and higher inflation, a Situations that could undermine confidence in the US dollar.
The Biden administration has defended the $1.9 trillion pandemic relief package Democrats passed last year as a necessary measure to protect the economy from further damage. Treasury Secretary Janet L. Yellen has argued that such large federal investments are affordable because interest costs as a share of gross domestic product stay at the level. historic lows thanks to consistently low interest rates.
But that landscape could start to change as the Federal Reserve prepares to raise interest rates, which have been set near zero since the start of the pandemic, to rein in inflation.
Fed pointed out last week that it is on track to start raising rates at its next meeting in March. Investors are anticipating the central bank could open up five rate hikes this year, bringing rates up between 1 and 1.25%.
The Fed has also kept long-term interest rates low by buying government-guaranteed debt and keeping those securities on its balance sheet. Those purchases will close next month, and last week the Fed signaled that it plans to “significantly shrink” its bond holdings.
Esther L. George, president of the Federal Reserve Bank of Kansas City, proposed in a keynote this week that a large Fed holdings of bonds can reduce long-term interest rates by as much as 1.5 percentage points — almost halving rates on 10-year government debt. While shrinking the balance sheet presents a risk to the market, she warned that if the Fed remained large in the Treasury market, that could skew financial conditions and undermine the credibility of the market. appreciated independence of the central bank from the elected government.
As interest rates rise, so does the amount the United States owes its debt-buying investors. Estimates of the National Assembly Budget Office that if interest rates rise according to their own forecasts, net interest costs will reach 8.6% of gross domestic product in 2051. That will amount to about $60 trillion in total interest payments more than three decades.
Frequently asked questions about inflation
What is inflation? Inflation is a Loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in prices for everyday goods and services such as food, furniture, clothing, transportation, and toys.
“The larger amount of debt makes the US fiscal position more vulnerable to rising interest rates,” the CBO said in its long-term budget outlook.
In a recent report, Brian Riedl, a senior fellow at the Manhattan Institute, a conservative think tank, pointed to the CBO’s prediction that the average yield on 10-year Treasury notes will rise from 1.6% to 4.9% over the next 30 years. . He estimates that if interest rates exceed that forecast by just one percentage point, it will mean another $30 trillion in interest expenses over that time.
Mr Riedl described policymakers who expect interest rates to stay low indefinitely as “arrogant” and said it was risky to assume that low rates would keep debt stable under time.
“The economy is unpredictable, and we should never take low interest rates and inflation for granted,” Mr. Riedl said in an interview.
Interest on debt could soon become the fastest growing part of the federal budget.
Biden administration officials emphasized that they consider fiscal accountability a top priority. They have pledged that their economic agenda will be fully paid for through increasing taxes on wealthy Americans and corporations and by stricter enforcement of the tax code. Yellen had predicted that inflation would moderate by the end of the year and return to normal as supply chains stabilize.
In recent months, the deficit has begun to shrink as a stronger economy spurred tax collection and as government payments for pandemic relief have slowed.
And some economists suggest that a more recent economic phenomenon – inflation – may have a silver lining in that it could tackle the nation’s debt burden.
Kenneth Rogoff, a Harvard University economist, says that rising prices have essentially reduced the value of outstanding debt and increased tax returns as incomes have increased. He suggested that The market seems to be mostly undisturbed Given the possibility of higher interest rates so far and that lead to other risks to the economy amid the pandemic, the size of the national debt is not as worrisome as some say.
“Of course, you don’t want to be in debt,” Mr. Rogoff said of the $30 trillion total. “But compared to other problems right now, that’s not the main issue.”
https://www.nytimes.com/2022/02/01/us/politics/national-debt-30-trillion.html US national debt hits $30 trillion as borrowing soars amid pandemic