NewsUS debt
May 20, 2024 01:47 PM EDT
Government debt has increased by about 50% since the beginning of the Covid pandemic, causing concern in Washington and on Wall Street.
The current value of the government IOU is $34.5 trillion, approximately $11 trillion more than it was in March 2020. Today, it accounts for more than 120 percent of the US economy.
Concern about such startling figures has mostly come from watchdog groups like the Committee for a Responsible Federal Budget and political hostility on Capitol Hill. But in recent days, the talk has spread to major players in government and finance, with one well-known Wall Street business even questioning if the debt's expenses represent a serious threat to the current surge in the stock market.
The CBO estimates are concerning because they show the anticipated trajectory of debt and deficits.
According to the monitoring body, public debt, presently $27.4 trillion when intragovernmental commitments are excluded, will increase from 99% of GDP to 116% over the next ten years. In its most recent assessment, the CBO stated it would be "an amount greater than at any point in the nation's history."
Rising budget deficits have fueled the debt, and the CBO anticipates that this will only get worse.
Currently at $855 billion for the first seven months of fiscal 2024, the government projects a $1.6 trillion gap, which would soar to $2.6 trillion by 2034. In ten years, the deficit as a percentage of GDP will increase from 5.6% to 6.1%.
That is to say, rather than the relative prosperity that the United States has had for the most of the era following the temporary decline following the pandemic proclamation in March 2020, such high deficit levels are often associated with economic downturns. Globally speaking, member states of the European Union are obligated to limit their deficits to 3% of GDP.
According to figures issued by the Treasury Department on Wednesday, foreign holdings of U.S. federal debt were at $8.1 trillion in March, up 7% from last year. Treasurys that don't carry risk are still regarded as desirable places to keep money, but if the US doesn't control its spending, that perception may change.
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Concerns about increasing bond rates potentially impacting the equities markets are more imminent.
The debt position has become more complex due to Federal Reserve interest rate rises. The central bank tightened policy by raising the short-term borrowing rate 11 times, or 5.25 percentage points, between March 2022 and July 2023. This move coincided with a significant increase in Treasury rates.
Corporate tax collections have nearly quadrupled since Trump pushed through the expiring corporate tax cuts in 2017. A Democratic victory might result in tax rises, albeit "much of this would likely go toward new spending," according to Goldman analysts. A GOP sweep could result in the renewal of these rates.
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