The US, among most other global economies, crashed from a booming 2019 to a recession in 2020, which was triggered by the Coronavirus pandemic. At the end of the 4th quarter of 2019, the US had a record-breaking debt of $21 trillion. With the pandemic sending the economy into a tailspin, the 2nd quarter national debt is now over $26 trillion.
Trade is slowly opening back up, but we are still faced with a skyrocketing debt. Unemployment figures hover at 11 percent. However, many people are out of a job permanently. Thanks to the pandemic, the immediate economic forecast looks grim.
As with most economic downfalls, the worst effects are being felt by those at the bottom of the socio-economic ladder. The middle class is struggling. Those most vulnerable at the lower strata of society are seeing a future without prospects.
At the end of the 4th quarter of 2019, the Debt-to-GDP ratio was around 80 percent. That number was considered high, and much of it was due to President Trump’s huge tax cuts. At the end of the 2nd quarter of 2020, the US government is making every attempt to help the economy, and those attempts, which involve rescuing businesses and individuals from disaster, have raised the national debt to unprecedented levels.
Most economists believe that in order to prevent a serious depression, the US must, at least in the foreseeable future, rack up more debt to salvage the economy. In other words – keep spending.
The current pandemic is already affecting the economy in disastrous ways. The national debt is already slowing down any anticipated growth. In the future, it could lead to a loss of confidence in the government’s ability to survive and handle any of its debts.
Can we be prepared for another “surprise” pandemic? If the government continues to spend money, it does not have; the debt crisis will grow exponentially. Thanks to the current pandemic lockdowns, our debt will grow to 100 percent+ of GDP and will only climb higher in the months to come. That is unavoidable. Still, there is plenty of emergency spending going on to keep the country afloat without the necessary corresponding tax revenues, which have plunged drastically. Our deficit in 2020 will exceed 17 percent of GDP as more and more debt is being accumulated.
So far, interest rates have remained low, thereby not compounding to the debt. But those interest rates are very likely to rise. It is anticipated that by 2050, repayment of just the interest on our national debt will account for 24 percent of government spending. And this number will only hold if there are no future pandemics to unravel the system. If the federal government is spending a large portion of its income on mere interest payments, it will have less money to spend on other necessities – such as social security.
Economic experts agree that the government must continue to raise the debt to prevent the situation from unraveling into something even worse. But historically, when money printing gets out of control hyperinflation typically follows.
The recent stimulus package, which amounted to $2.3 trillion, has temporary kept corporate America afloat.
Federal Reserve Bank Chairman recently said Jerome Powell:
“This is not the time’ to worry about debt. This is the best we can do at the present time to prevent another pandemic business lockdown in the future, which would reach catastrophic levels.”
It looks like the debt binge is just getting started.