The COVID pandemic has hit the global economies like a tsunami, leaving unprecedented financial disaster in its wake. The modern world (with the possible exception of the Wehrmacht Republic) has not seen anything like it.
The U.S. government has tripled its budget deficit to $3.1 trillion in an attempt to soften the economic blow for its citizens. This is a considerable increase from the fiscal year 2019 deficit of $984 billion. The deficit is expected to make up 16 percent of the GDP by the end of the fiscal year 2020.
At the same time, the federal debt will comprise 98 percent of GDP. The situation is made worse because millions of citizens are out of work.
Thousands of businesses have closed, either temporarily or permanently, thus cutting off sources of tax revenues for the federal and state governments. At the same time, the government has had to meet the needs of so-called entitlement programs such as Medicare and Social Security. We see a gigantic chasm between U.S. government spending ($6.55 trillion) and U.S. government revenue (3.42 trillion). Four trillion dollars have gone toward relief measures for unemployed citizens and struggling businesses. There will likely be more relief spending in the near future. The U.S. annual deficit is expected to outpace the U.S. at 102 percent of GPD.
According to Maya MacGuineas, president of the Committee for a Responsible Federal Budget, “We should be borrowing now, but once the economy recovers, our debt cannot continue to grow faster than the economy forever.”
As millions of Americans struggle with unemployment, the national debt is no longer the country’s major concern. According to Federal Reserve Chair Jerome Powell, “The U.S. federal budget is on an unsustainable path, has been for some time, but this not the time to give priority to those concerns.” This may be logical reasoning, but as the country returns to reasonable fiscal stability, it will be overwhelmed by an astronomical debt problem.
Like the U.S., Canada is equally struggling with unprecedented deficits and national debts. It has just declared a deficit of $342 billion, versus an anticipated pre-pandemic deficit of $34 billion. This amounts to a fifth of the country’s GPD. Again, such numbers have not been seen since World War II. Federal debt of $1.2 trillion is anticipated for the 2020-2021 fiscal period. As in the U.S., the COVID pandemic has whirled through the Canadian economy like a raging tornado.
Former Finance Minister Bill Morneau (who has recently resigned his position) provided an outline of Canada’s financial situation and added little as to what actions would be taken to return the economy to normal. Like his American counterparts, he stated that action (as in spending needed relief funds) had greater immediacy than concerns about deficits and debts.
“Some will criticize us on the cost of action, but our government knew that the cost of inaction would’ve been far greater. Those who would have us do less ignore that, without government action, millions of jobs would have been lost, putting the burden of debt onto families and jeopardizing Canada’s resilience.”
The Canadian government has established an emergency relief fund to help its unemployed citizens survive the pandemic, and it has created an emergency wage subsidy to help businesses remain open. The total relief package for businesses has topped $212 billion. The government has paid bonuses to senior citizens and an additional $2 billion in needed childcare benefits for families. In total, these survival funds have reached a total of $236 billion, and the pandemic is showing no signs of recovery. The Canadian government anticipates emergency payments of $469 billion by the end of the 2021 fiscal period.
As in the U.S., Canada is anticipating a reduction of 30 percent in income taxes and 11 percent corporate taxes in revenue. Canada is clearly dealing with a debt explosion.
During 2020, both the U.S. and the Canadian government have been focused on accumulating massive debts to provide needed COVID pandemic relief.
We are approaching the time when governments need to shift their focus on economic recovery instead of survival before it is too late.