Federal Government Reaches Ugly Post-WW2 Milestone: Debt Bigger Than GDP
Article from For Liberty by Norm Leahy.
The federal government is about to hit a regrettable post-World War II milestone, as government debt will meet, or exceed, the size of the entire U.S. economy.
The last time U.S. government debt was bigger than U.S. GDP was 1946, as the nation wrapped up its war-time spending surge.
This time around, the rapid debt rise is due to three main factors: a massive economic contraction resulted in falling tax receipts. But government spending reached unprecedented levels to avoid even more economic pain.
While markets seemed largely unworried about the government’s debt levels, for now, the long term consequences of spending, and borrowing, well beyond our means does not come without a price:
“In the short term you have to spend what it takes to minimize the recession and keep the economy afloat,” said Brian Riedl, a senior fellow at the conservative Manhattan Institute for Policy Research. “But the soaring debt to GDP ratio is totally unsustainable, even if interest rates remain low.”
Interest costs are expected to eat up a larger share of the federal budget, topping out at $1 trillion a year by the end of the next decade, Mr. Riedl estimates.
Even before the coronavirus shocks to the economy, government red ink was a real and growing problem, thanks to the spendthrift ways of the political class:
Cutting the size of the nation’s debt hasn’t in recent years been a priority of lawmakers in either political party—a factor that facilitated bipartisan support for earlier pandemic stimulus packages. The latest effort is testing the limits on lawmakers’ willingness to spend, however. Democrats have pushed for a broad-based, $3.5 trillion relief package, while the White House and Senate GOP have sought to cap the bill at $1 trillion. Some Republicans have argued against any additional relief measures at all.
The future generations who will have to pay for it will have every right to resent our profligacy.
Image Credit: By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
This is what happens when you cut taxes and fail to cut spending.
Historically, cutting taxes has led to increased revenue as it has led to more consumer buying, thus more revenue from that source.
Washington doesn’t need tax revenue like it has in the past. In fact, tax revenue cannot begin to support the level of government spending of today. Even “borrowing” by issuing new bonds has played out since the FED is having to buy all that don’t sell on the market. Now, they aren’t even pretending to have any viable economic foundation to funding the government, they just type any amount “needed” into the computer and POOF, magically billions of non-existent cyber money appears. Of course, non-existent money will have to be either turned into some form of real money some day or a massive default will occur. If you think paper money is worthless, cyber money is much more worthless. At least with a piece of paper in hand, you still have a medium of exchange to use to pay for something, whereas cyber money can vanish in an instant and you don’t even have a record of ever having it, you have nothing.
Part of the reset plan, America to file bankruptcy and clear the debt. Finally forcing the FED to reap what they have sewn. Consequences are a bear.