U.S. Federal Debt To Get Bigger Than Its Economy Before Biden’s Stimulus Package Gets Approved, CBO Claims

According to the Congressional Budget Office, the federal debt of the United States is about to be greater than the size of the country’s economy this 2021, partly due to the massive emergency measures pushed by Biden to the Congress to deal with the effects of the coronavirus pandemic. If the projection became true, it would be the second time for it to happen. The first one took place right after the end of the Second World War. 

Specifically, the sudden increase in federal debts is due to the approved $4 trillion spending to combat both the economic and health effects of the COVID-19 since March last year. Because of this, the debt of the federal government in 2021 will be bigger than the overall gross domestic product of the country, based on the report of the Congressional Budget Office. 

Many Democratic legislators and economists believe that a spending spree is crucial to the revival and stabilization of the economy. Because of the coronavirus pandemic, many world economies–including the United States–have suffered a downfall. In fact, there’s a possibility that the job markets would experience permanent damage. According to Jerome Powell, the Federal Reserve Chair, the unemployment rate in the United States in January 2021 was already close to 10 percent, which is a contrast to the officially declared rate of 6.3 percent. He contended that there were flaws in the classifications of data, which had resulted in the false number.

Meanwhile, Republic lawmakers and critics already warned that high levels of spending could put the economy in jeopardy. It could likely cause an imminent increase in inflation. If this happens, the Federal Reserve will be forced to heighten the interest rates. As a result, it would also increase the costs of the borrowing of the federal government. Even if the central bank has assured that its interests will be kept at minimum rates, changes in inflation could make it retract the vow. 

The estimates provided by the Central Budget Office are anchored on the current policy. It still did not include the $1.9 trillion stimulus package that the Biden’s administration is hoping to pass in the coming weeks. 

“It’s pretty horrific. The trouble is it’s high and escalating and on an unsustainable trajectory,” said Douglas Holtz-Eakin, the former chief economist of Senator John McCain’s campaign. “World financial markets will at some point lose their faith in the ability of the U.S. to make the numbers add up, and they will either cut us off entirely or charge prohibitively high rates.”

It is expected that the Democrats will push the relief package despite the existing burden in the federal debt. The economic recovery of the country has been stalled as the coronavirus continues to spread in the height of the winter. In fact, the job growth in America has experienced a plateau, despite the fact that approximately 11 million jobs that were lost during the pandemic already returned. 

 

The economic relief package of President Biden will dedicate billions of dollars to the country’s response to the coronavirus pandemic. It will include vaccine distribution, faster production of vaccines, stimulus payments of millions of American families, extended unemployment benefits until September, and financial support to educational institutions and state governments. Biden has repeatedly shrugged off the possible dangers that come with excessive spending. White House already presented the cases of Wall Street analysts that prove that bigger spending is essential. 

Furthermore, government economists are keeping inflation in check. The central bank remains on its stance that it would increase the borrowing rates if there’s an increase in inflation. On Wednesday, Powell indicated that “has been much lower and more stable over the past three decades” than it was in the past. 

“The biggest risk is not going too big if we go — it’s if we go too small,” said Biden last week in his virtual speech at White House.

Other economists believe that deficit spending could aid the ailing economy. Joseph Stiglitz, an economist at Columbia University, explained that there’s a gap between the actual economic output of the United States and its potential economic output. According to him, lawmakers should focus their efforts on reducing the gap to improve the economy and decrease the unemployment rate. 

“Deficit spending expands output and employment, which can generate more tax revenue,” Stiglitz explained. “If as the result of a little more deficit spending we get more growth and higher employment, that should not be too big a worry.”

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