Crisis May Add $6 Trillion to Federal Debt

Chris EdwardsThe COVID-19 pandemic has pushed the economy into a  deep recession. The crisis will also create lasting economic damage from the jump in debt as a result of higher federal spending and lower federal revenues.Treasury Secretary Mnuchinsaid recently that “interest rates are incredibly low, so there’s very little cost of borrowing this money.” That statement is not correct. Mnuchin seems to have forgotten about loan principal. Every dollar borrowed causes damage down the road from the resulting higher taxes extracted from the private sector. Fu rthermore, interest rates may spike, which will increase federal borrowing costs as accumulated debt is rolled over.How much debt will the crisis add? Perhaps $6 trillion, based on the rough spending and revenue scenario shown in the chart below.I started with CBO ’s pre‐​crisisbaseline projection to 2030 and adjusted annual spending and revenues to reflect the new realities.The spending and tax cuts in the CARES Actwill increase debt by $1.76 trillion. The prior relief package called Families Firstwill increase debt by $192 billion. Add to that perhaps $450 billion for a  further relief bill that Congress may soon pass. In total, spending increases and tax cuts in coronavirus legislation may increase debt about $2.4 trillion.Debt will rise further because the recession is reducing federal revenues. During the last recession, revenues fell 18 percent between 2007 and 2009 and took five years to recover to the ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs