Deficits totaled a record $3.1 trillion in fiscal year 2020

The Congressional Budget Office published its September monthly budget review today, which estimates deficits totaled a record $3.1 trillion in fiscal year 2020 – more than twice the previous record. Based on Treasury data, debt also appears to have breached the size of the economy, totaling nearly 102 percent of GDP at the end of the fiscal year. This is higher than CBO’s previous projections, possibly because the Treasury is retaining more cash on hand than expected.

Below is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

It is hard to believe we now owe a full year’s worth of output. We weren’t supposed to cross this threshold for over a decade, but here we are. Debt is the size of the economy today, and soon it will be larger than any time in history.

Last year’s $3.1 trillion deficit is largely due to the COVID response, but we can’t blame the pandemic for most of this massive debt load. Lawmakers spent the last five years approving unpaid for tax cuts and spending hikes during the expansion, rather than getting our fiscal house in order, securing our trust funds, and prepping for an emergency where borrowing would be justified.

Of course, we shouldn’t try to dramatically reduce today’s deficits in the midst of this emergency – the focus for now must be on combating the pandemic and supporting the economy. But separate from COVID relief, both candidates for President have plans that would add $5 trillion more to the debt over a decade, on top of the $13 trillion of deficits we’re already projected to run. That’s exactly the opposite of what the country needs.

Instead, we need both sides to come together and start planning how they will make the tough decisions needed to save Social Security and Medicare and stop our massive debt from spiraling out of control once the crisis is over and the economy has recovered.

21 comments

  1. Why care about the U, S. debt? Government bonds continue to be regarded as very safe investments. Suppose we spend a few more trillion — what awful things will happen?

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    1. greglee2014 – Why care about U.S. debt??? We have to pay interest on all those bonds. The CBO calculated that if we continue at the current level of deficits, that in 10 years or less, we will be paying more in interest on the debt, than we spend on national defense. Dollars used to pay interest on debt cannot be used to improve roads, schools, pay salaries, pay retirement benefits, disability benefits or fund emergency spending after a natural disaster, etc. The only way the government has any money to spend, is through taxes or debt and at some point taxes will have to be raised to levels unheard of on every taxpayer, not just the rich, to pay the additional interest. That is why we should all care about the U.S government debt bomb that is going to make us all poorer.

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      1. Bondholders won’t care whether the interest they’re paid comes from taxes or borrowing. To pay the additional interest, we can borrow. Also, you ignore the possibility that the money we borrow stimulates the economy, resulting in more tax moneys collected. which can be used to pay the interest.

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      2. Rather than say deficis are irrelevant, I would rather say that their significance has not been explained to me. I read this thread (and other similar discussions on the Web) where large deficits are decried — Awful! Terrible! We must mend our ways! As though this were obvious. But I just don’t get it. What, exactly, is the problem?

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      3. Well eventually high inflation. Even the MMT folks acknowledge that plus a lot of money devoted to interest payments and the ongoing hope someone will continue to buy all the debt without eventually demanding a higher return. Not even government can go forever not paying for what it spends. And we are not talking about what’s need during the pandemic crisis, but the ongoing deficits.

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      4. I gather from your wording that these adverse effects of deficit spending are theoretical. Eventually we will see high inflation, you think. Someday, bond buyers will lose confidence in US bonds, you say.
        I’m not against theories, but what are the theories? Why should I believe that there will be inflation in the future as a result of current governmental borrowing?

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      5. Don’t believe it. MMT is a theory too. Pick a economist you like and believe them. CBO thinks deficits and debt are a serious risk.

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      6. greglee – Inflation is no longer set by market forces, like it was back in 1979 and 1980. When inflation was running above 12%. The FED and central bankers around the world, have kept interest rates artificially low to increase borrowing and force more debt on business and consumers. No one saves for anything now, when banks pay just .5% on savings. Who knows when interest rates will rise above current levels, but when they do, there will be major problems for anyone with credit card debt, because the interest rate you pay each month on balances, goes up as interest rates rise. Also, it will cause credit to purchase houses and cars to be so much higher, that many will not qualify to buy anything new, as they struggle to pay down current debt. The economy will tank and jobs will be lost. The world GDP is $81 Trillion, but we owe over 3 times that at $233 Trillion. As long as the debt payments are made everything should be ok, but we have to still see what the Covid pandemic has really done to global markets. 2021 and 2022 may see a major default of loans, worse than the 2009 recession. Not all debt is bad, when it is not excessive. But it forces asset prices higher with stock buy backs and purchases of overpriced cars and housing, because you can afford to pay a higher price because of low interest rates, when buying on credit. Many stocks are not worth the price, because of stock buybacks, which used to be illegal, have artificially raised the price, when the company has not improved operating costs, or production output.

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      7. The BLS figures for inflation are totally honest and transparent, in my understanding. There has been some discussion of whether the CPI is the best measure of consumer prices, given the way it is calculated, and the BLS also reports several alternative indexes. At any rate, I think the CPI is a better measure than the price of a burrito bought from the taco truck in your favorite free-lance writer’s neighborhood, So get serious.
        I agree with you about the best way for individuals to handle personal debt. I don’t owe anything, myself (but I did have a home mortgage until 2004, assumed with great reluctance). But note that personal debt is quite different from national debt, since persons are vulnerable to sickness and death.

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    2. greeglee – All this debt, government, business and personal has already caused inflation. The government reported inflation rate is FASE, it is manipulated by the U. S. Bureau of Labor and Statistics. Here is an article that explains true inflation, from 2018. It explains why the government is never going to tell us what the real inflation rate is, like they did back in 1980, before Social Security benefits recieved a COLA. I hope this helps you understand why excessive debt is not a good thing long term. I only use debt to buy Houses or Cars, everything else I use zero interest credit cards or cash back rewards credit cards and pay the balances each month, so no interest is ever paid for using the Banksters money.

      Revealing the Real Rate of Inflation Would Crash the System
      https://dailyreckoning.com/revealing-real-rate-inflation-crash-system/

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    3. greglee -Just remember what Mark Twain said – Lies, Damned Lies and Statistics. “The BLS figures for inflation are totally honest and transparent” Sure they are, when the price of steak gets too high, they say, well the consumer can substitute hamburger or a cheaper cut of meat and they adjust food prices down. You can believe that the CPI numbers are true, but I chose to look at the price of food, cars, insurance, rents, houses and medical cars, none of those things increased only 1.3% in the last year. My car insurance just renewed and is up 19.8 %, in 6 months. Note on my notice from the insurance company, I am still getting all my discounts and your rate may have increases because of increased claims in your state.

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    4. rdquinn said “CBO thinks deficits and debt are a serious risk.”

      Maybe it does. Here is as close to the CBO saying this that I’ve found:

      “High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”

      from https://www.cbo.gov/publication/56516

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      1. If say that pretty much sums up a serious risk. On the other hand people who accept MMT wouldn’t think so.

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  2. “Instead, we need both sides to come together and start planning how they will make the tough decisions needed to save Social Security and Medicare and stop our massive debt from spiraling out of control once the crisis is over and the economy has recovered.”

    For the last 20 years maybe longer Congress has received reports about the coming SS / Medicare shortages from the Social Security Trustees and has done nothing to fix it. Congress and the President are gutless on financial issues, each side blaming the other, playing politics, when tough decisions need to be made. How about freezing spending for 5 years and let the economy grow and then you will have a balanced budget in year 6. Americans are spoiled. I hear complaints from seniors that they need a bigger COLA than the 1.3 or 1.4 percent projected for 2021. I figured the $1,200 stimulus was a 13.46 percent increase, so anyone who received a stimulus check have zero reasons to complain about any COLA for 2021.

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    1. Mik – There is always bipartisan agreement on increased spending, but never on any meaningful cuts in spending. We have a ship of fools in DC running this country right into an ICEBERG!

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