In the last two and a half years, the U.S. has borrowed more than the entire annual economic output of every country in the world except China.
The U.S. is borrowing more than other developed nations are producing. That’s not sustainable, experts, and common sense, say.
Since the beginning of the COVID-19 pandemic in early 2020, the U.S. federal government has borrowed an eye-watering $7 trillion, an amount that dwarfs the annual gross domestic product of every country on earth except China the Wall Street Journal reported last week.
Pandemic-era borrowing has brought the total national debt held by the public to $24 trillion, meaning almost a third of the total was added in less than three years.
- The share of national debt held by the U.S. public is close to eclipsing the country’s total economic production, and is already at a dangerous level according to a 2013 World Bank study, which found that debt levels beyond 77% of GDP are associated with slower growth in developed economies.
- $5 trillion of new federal debt was added under President Trump in 2020, including $3.4 trillion for COVID relief, and the country is on course to add $3.6 trillion more by the end of 2022, although not all of this is held by the public.
- The Committee for a Responsible Budget forecasts a total of $4.8 trillion in new deficit spending from 2021-2030 due to President Biden’s initiatives.
While free spending has fueled inflation, an even bigger threat looms in the form of a “doom loop,” a term describing what happens when the government has to borrow more money just to cover interest payments, according to Wall Street Journal contributor Red Jahnke.
- “One school of thought asserts that so long as the economy is growing at a faster rate than the debt, the increase in the national debt doesn’t matter,” wrote Jahnke. “But that certainly isn’t happening now. In principal amount, the national debt has exploded and the cost of debt service is escalating, too. The current $756 billion annual net interest expense on the $24 trillion of publicly held debt implies a required economic growth rate of more than 3% in a $25 trillion economy in order for the debt ‘not to matter.’ The average forecast for economic growth in calendar year 2022 is less than 1%, and many economists expect negative growth—i.e., recession—in 2023.”
- Recession will leave the government no choice but to borrow even more money for economic stimulus, pushing interest costs even higher and increasing the risk of the “doom loop,” Jahnke warned.