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business Monday 7 SepteMber 2020
AP Explains: U.S. debt will soon exceed size of entire economy

By PAUL WISEMAN borrowing rates ultra-low
AP Economics Writer by buying up huge volumes
WASHINGTON (AP) — The of Treasury debt.
U.S. government's war DOES THE DEBT CARRY ECO-
against the coronavirus NOMIC CONSEQUENCES?
is imposing the heaviest Economists have long
strain on the Treasury since warned that too much
America's drive to defeat government borrowing
Nazi Germany and imperial risks hobbling the econ-
Japan three-quarters of a omy. When the govern-
century ago. ment takes on excessive
The Congressional Budget debt, the argument goes,
Office has warned that the it competes with businesses
government this year will and consumers for loans,
run the largest budget defi- thereby forcing borrowing
cit, as a share of the econo- rates prohibitively high and
my, since 1945, when World imperiling growth.
War II ended. Next year, Another concern is that in-
the federal debt — the sum vestors will demand ever-
of the year-after-year gush higher interest rates for ac-
of annual deficits — is fore- cepting the risk that gov-
cast to exceed the size of ernments could default on
the entire American econ- their debts.
omy for the first time since Some economists and
1946. Within a few years, it's budget watchers still warn
on track to set a new high. that a day of reckoning will
It might be surprising to come and that the United
hear that most economists States will have to curb
consider the money well- spending, raise taxes or
spent — or at least neces- both.But after the Great Re-
sary. Few think it's wise to cession, many economists
quibble with the amount began to rethink their view
of borrowing deemed nec- of debt. The recovery in the
essary to sustain American United States and especial-
households and businesses ly in Europe was sluggish in
through the gravest public part because policymak-
health crisis in more than ers were too reluctant to
100 years. That's especially stimulate growth with debt.
true, economists say, when In this April 29, 2020 file photo, a sign displaying the size of the national debt is displayed along an In the United States, rates
the government's borrow- empty K Street in Washington. Associated Press didn't rise even though
ing costs are super-low and government debts were
investors still seem eager to snap the record of 106% of collapsed at a 31.7% an- GDP, the same level as in high. Investors, it turned
buy its debt as fast as the GDP set in 1946. (The per- nual rate from April through the prewar year of 1940. out, had a near-insatiable
Treasury issues it. centage does not include June, the worst three Behind that success was a appetite for U.S. Treasurys,
Here's a closer look at the debts that the government months on records dat- fast-growing economy that still considered the world's
federal debt and the gov- agencies owe one anoth- ing to 1947. In March and delivered rising revenue safest investment. Their rush
ernment's use of it to com- er, including the Social Se- April combined, employers to the government and to buy federal debt helped
bat the pandemic and the curity trust fund.) slashed a record 22 million erased the debt. From 1947 keep rates low and limited
economic pain it's inflicted. WHY IS THE BUDGET SO LOP- jobs. To help Americans through 1961 the economy the government's borrow-
JUST HOW MUCH MONEY SIDED? to endure the crisis, Con- grew at a 3.3% annual rate. ing costs. So did persistently
ARE WE TALKING ABOUT? The U.S. government was gress passed a $2 trillion The financial system was low inflation.
The annual deficit — the already deeply in debt relief bill in March. Among tightly regulated by the In such a low-rate, low-infla-
gap between what the even before the virus struck other things, the package government. This allowed tion environment, the risk of
government spends and in March. The budget had sent Americans one-time policymakers to keep inter- piling on more debt seems
what it collects in taxes — absorbed the expenses of checks of up to $1,200 and est rates artificially low and more manageable, at least
will hit $3.3 trillion in the bud- the 2007-2009 Great Reces- temporarily offered the un- minimize the cost of repay- for countries like the United
get year that ends Sept. sion, the federal benefits for employed $600 a week on ing the debt. States and Japan that bor-
30, the CBO projects. That the retirements of the vast top of their state jobless Circumstances are some- row in their own currencies.
amounts to 16% of Ameri- baby boom generation benefits. what different now. The In a speech last year, Ol-
ca's gross domestic prod- and the cost of President Economists say that the res- economy doesn't grow as ivier Blanchard, a former
uct, which is the broadest Donald Trump's 2017 tax cue probably helped keep fast as it did in the postwar chief economist of the In-
measure of economic out- cut. Last year, the debt bur- the economy from sinking boom years. Since 2010, ternational Monetary Fund,
put. Not in 75 years has a den reached 79% of GDP, into a depression but also GDP growth has averaged declared:
deficit been that wide. the highest share since that much more assistance just 2.3%, even excluding "Put bluntly, public debt
The federal debt, reflecting 1948. is needed. this year's economic implo- may have no fiscal cost ...
the accumulated deficits Then came the pandem- CAN THE U.S. REPAY ALL sion. And the government The probability that the U.S.
and the occasional surplus, ic. The economy tumbled THAT MONEY? doesn't control interest government can do a debt
is forecast to reach 100% into a sickening free-fall After World War II, the Unit- rates as it used to, not after rollover, that it can issue
of GDP next year. Then it is as businesses shut down ed States paid down the the financial deregulation debt and achieve a de-
predicted to keep climbing and millions of Americans federal debt with surprising of the 1980s. creasing debt-to-GDP ratio
to $24.5 trillion — 107% of hunkered down at home speed. By 1961, the debt Still, the Federal Reserve is without ever having to raise
GDP — in 2023. That would to avoid infection. GDP had dropped to 44% of helping keep government taxes later, is high.''q