The Congressional Budget Office’s (CBO) latest report says that although the federal deficit this year is the lowest of the Obama era, in the near future, it is expected to skyrocket to World War II heights.
The years between 2009 and 2012 saw the largest recorded federal government deficits since 1946, based on percentage of the economy. And although the White House also reported that the deficit this year is the lowest of the Obama administration, there is little reason for celebration.
Currently, the amount of federal debt is exactly 74 percent of the economy, and if measures aren’t taken to reign in the deficits, the CBO projects that by 2039 the U.S. will see a debt to GDP ratio of 106 percent. According to the CBO, the rate of debt growth is expanding at an undeniably unsustainable rate.
“Budget deficits are projected to rise steadily and, by 2039, to push federal debt held by the public up to a percentage of GDP seen only once before in U.S. history [just after World War II],” the report states.
“How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to pay its debt obligations, which would require the government to pay much higher interest costs to borrow money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country,” the report continues.
Part of the deficit surge in the coming years will come from the increasing demand on Social Security and Medicare, as well as associated interest payments. CBO advocates strongly for policymakers to take seriously the inevitable fiscal consequences, noting that the sooner realistic action is taken to curb spending and shrink deficits, the better.
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