Finance

Here’s How To Avoid A Debt Disaster In The Next Decade

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  • The levels of national debt are increasing at a “staggering speed,” with the Gross Federal Debt reaching levels it hasn’t seen since WWII, an economist told the DCNF. 
  • If the U.S. reduced the growth rate of spending to about 1.5% annually the national budget would be balanced by 2031, a Heritage Foundation expert told the DCNF. 
  • If the U.S. stays on the current trajectory that it is accruing debt, the country is heading towards a debt crisis.

The U.S. could reach default on the national debt if it continues accumulating deficits at the current rate, but the national budget could solve the issues by 2031, an economics expert told the Daily Caller News Foundation.

The levels of national debt are increasing at a “staggering speed,” Stony Brook University Research Associate and Economist Marins Azzimonti told the DCNF. The debt the federal government owes as a percentage of gross domestic product, or the measure of the market value of goods and services produced in a specific period, reached around 135% in the second quarter of 2020, the highest it has been since WWII, Azzimonti told the DCNF.

“There are lots of ways to avoid a debt crisis,” Heritage Foundation Senior Policy Analyst Adam Michel told the DCNF. “The sustainability of our budget has much more to do with growth rates than the level of debts or, that they were accumulating.”

“If you look at the latest CBO [Congressional Budget Office] report that just came out, they showed that spending is supposed to grow on a trajectory that is faster than how fast revenue growth comes in, and faster than the economy is supposed to grow,” Michel said. (RELATED: Congressional Budget Office Projects Record Deficits Over The Next Decade)

Since people and businesses were negatively impacted by the COVID-19 pandemic, it makes sense for the U.S. government to borrow in order to redistribute resources to those affected, according to Azzimonti. President Joe Biden’s proposed coronavirus relief package would cost $1.9 trillion and some worry it could lead to hyperinflation, the Daily Caller reported.

“More worrisome, because of the Pandemic, almost any country that can borrow is borrowing at this point. Does that mean that the U.S. will suffer a national debt crisis? Not necessarily. There is scope to increase taxes and the U.S. still has good credit ratings (it has never defaulted),” Azzimonti told the DCNF.

“Every economist would say that this is exactly the time where you should be borrowing to pay for COVID packages,” he said.

A $900 billion deficit was predicted by the Congressional Budget Office in 2019 due to the Trump administration’s 2017 tax cuts and increased government spending, according to the Balance. COVID-19 exacerbated the projected federal deficit, which is estimated at around $3.3 trillion for 2020.

The U.S. could balance the national budget by 2031 by doing nothing other than reducing the growth rate of spending to around 1.5% annually, Michel told the DCNF. The country could also start paying off some of its debts if the growth rate of spending were reduced.

Fiscal stimulus historically leads to large debts and deficits that cause higher taxes in the future which slow growth and hinder recovery, according to Michel. The U.S. needs to reduce the growth rate of spending because there is not a reasonable way to increase revenue enough to close the fiscal gap, Michel said.

“Saying we’re going to continue racking up trillions of dollars of debt until markets stopped lending us money, is a surefire way to ensure that we precipitate a fiscal crisis, because though in that sort of mental model, the only thing to stop us is runaway inflation and or incredibly high debt service costs,” Michel said.

“So the whole name of the game is addressing the problem before we get there. Otherwise, it’s too late,” Michel said.

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