US media: The US government's massive borrowing will eventually make it difficult to sustain its debt | Federal | US government
On July 5th, the website of The New York Times published an article titled "The United States is Borrowing". The full text is excerpted as follows:
The history of federal debt is as long as a country exists. Increasing federal debt is sometimes a far sighted move, but now that the United States is borrowing heavily during periods of economic growth, the scale of its debt is becoming increasingly unsustainable. The Congressional Budget Office predicts that over the next decade, the federal budget deficit will increase by an average of approximately $2 trillion annually, on top of the $25.4 trillion already owed to investors by the government.
The cost of borrowing is very high. More and more government revenue is flowing to investors who have purchased government bonds in the form of interest payments before it can be used to benefit the American people. The government does not collect taxes from the wealthy, but pays them in order to borrow money from them.
According to data from the Congressional Budget Office, by 2029, the government's annual interest expenses will exceed defense expenditures. By 2033, paying interest alone will consume 3.6% of the US economic output.
Before the outbreak of the epidemic, interest rates remained extremely low for a decade, which means that despite the surge in federal debt, the interest payments required were still relatively low. In terms of the proportion of debt to the national economy, the size of federal debt at the beginning of 2020 was about twice that of early 1990, but the interest burden was only half of what it used to be.
However, the era of low interest rates has come to an end. The cost of living by borrowing continues to rise. It is imperative for US leaders to formulate new paths.
The achievement of an agreement to raise the debt ceiling does not necessarily mean a significant beginning. Democrats only agree to moderate spending cuts; Republicans refuse to consider any measures aimed at increasing fiscal revenue. What is the result? Before reaching an agreement, the Congressional Budget Office predicts that the total debt will reach approximately $46.7 trillion by 2033. After the agreement was reached, its predicted figures only slightly decreased to $45.2 trillion. This is equivalent to 115% of the annual economic output of the United States, the highest level on record.
Both the Democratic and Republican parties understand the necessity of implementing larger scale reforms. After Congress voted in favor of raising the debt ceiling, President Biden announced, "We will take more measures to reduce the deficit."
Speaker of the House, Kevin McCarthy, acknowledged that the bill to raise the debt ceiling is not very meaningful. After the vote, he said he plans to form a bipartisan committee "so that we can identify waste and make practical decisions to truly address the debt issue.".
However, it is difficult to take their words seriously. Republicans are clearly not concerned about debt issues. In recent decades, whenever there is an opportunity, they have passed tax reduction laws and forced the government to borrow more money. As for Democrats, their calls for spending cuts have become increasingly cautious, both because the expected dire consequences have not yet become a reality and because they have learned a painful lesson: agreeing to spending cuts will only give Republicans more reason to promote a new round of tax cuts.
The debt ceiling is one aspect of the problem. It never aimed to reduce federal debt - it was actually established for the convenience of borrowing. During World War I, Congress grew tired of the process of obtaining its approval for every round of new bond issuance, and allowed the Treasury to borrow within a certain limit. The role of the debt ceiling is not even as effective as it used to be, as it has become a tactic adopted by Republicans who threaten to put the United States in a debt default position to coerce Democrats into reducing spending. Only when both parties are willing to participate can greater change occur.
Any substantive agreement ultimately needs to combine increasing revenue with reducing expenses, especially since any politically feasible agreement needs to combine both. Both parties must make compromises: Republicans must acknowledge the need to collect money owed to the government and tax the wealthy; Democrats, on the other hand, must acknowledge that reforming social security and healthcare plans should be discussed on the table, which have become the main drivers of federal spending growth. The fact will prove that if these cannot be achieved, it will be difficult to sustain financially.
This requires making painful choices. But if there is no choice, there will also be a cost, and the price is rapidly rising.
