The growing US national debt can be compared not with a rapid tornado, but with a rotting foundation that will ultimately lead to the destruction of the entire structure.
Writes about this American agency “Bloomberg”.
The media drew attention to the fact that the state support programs operating during the pandemic provoked an increase in the federal budget deficit, which has not been observed over the past 75 years. New forecasts from the Congressional non-partisan budget office released this week put a deficit of more than $ 3.3 trillion in 2020, or 16% of U.S. annual production.
Such a deficit entails an increase in national debt, which, according to Congress, will amount to $ 21.9 trillion in 2021. Next year, for the first time since World War II, national debt will exceed annual GDP. Beginning in 2023, there will be more debt than at any time in US history.
Liberal politicians do not see this as a problem, accepting “modern monetary theory” as a justification for increasing federal spending on unconvincing reasons, such as being able to print as much money as necessary. Conservatives, in turn, are confident that the United States is on the brink of a “Greek type” debt crisis.
“The truth about deficit and debt is in the middle,” Bloomberg said. “The economic damage they cause is more like a house’s foundations slowly decaying than a tornado that suddenly brought it down.”
The deficit leads to a reduction in national savings, reduces the amount of funds available for investment in the private sector. Reduced investment will entail a slowdown in wage growth, a decline in living standards and production. Foreign capital inflows could offset this, but would also increase payments to foreign investors and reduce domestic income. In a 2014 report, the Congressional Budget Office calculated that a $ 1 increase in the deficit reduced national savings by 57 cents and domestic investment by 33 cents.
In 2020, the US government will spend 1.6% of GDP on debt service. This is more than double the amount of income generated from corporate taxes. By 2030, interest payments will amount to 2.2% of GDP. For example, defense spending as a percentage of GDP is projected at 2.9%. Ultimately, both the military budget and other priority government spending may fade into the background, the agency warns.
“As the volume of the federal budget allocated for interest payments increases, other priorities of government spending will be replaced. Higher debt levels also increase the risk of a slow decline in the attractiveness of debt and the US currency in international markets and a gradual rise in inflationary expectations, ” Bloomberg said.