Thanks To Stimulus Spending, U.S. Debt Expected To Exceed The Size Of The Entire Economy Next Year
New data from the Congressional Budget Office released Wednesday shows that national debt is expected to exceed the size of the U.S. economy for the first time since World War II because of the massive federal spending programs enacted to prop up the economy during the coronavirus crisis.
In its new analysis, the CBO said it expects the federal deficit to reach $3.3 trillion this year—more than three times the deficit in 2019.
That deficit will push federal debt held by the public to 98% of GDP this year and more than 100% of GDP in the 2021 fiscal year.
The last time the debt to GDP ratio was this high was in 1946, the CBO said, after a huge uptick in spending during the second world war.
By 2030, the CBO said it expects debt to clock in at 109% of GDP.
Experts agree that the massive stimulus measures undertaken by the federal government (most notably through the $2.2 trillion CARES Act) were for the most part successful in preventing an economic crisis even worse than the one that the United States is currently facing.
“It was a massive rise in borrowing and quite shocking, but incredibly effective,” former CBO chief economist Wendy Edelberg, told the Wall Street Journal. “On the flip side, this is exactly why we, as a country, want to have room to increase borrowing during times of emergency.”
Despite the historically high debt levels, the stock market continues to reach record highs. It just had its best August since 1984 as the S&P 500 and the Dow Jones Industrial Average both recouped all their losses since March.
The new projections come as top lawmakers in Washington remain deadlocked over the next round of federal stimulus legislation. Democrats are pushing for a larger package: their opening offer was $3 trillion, and they have since said they’d be willing to compromise with a $2.2 trillion bill. White House negotiators—wary of what they view as unnecessary government spending— have rejected that offer in favor of a more targeted proposal. Republicans, whose opening offer was worth about $1 trillion, are now considering a $500 billion bill.
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