"We are becoming numb to these huge numbers, but it doesn't make them any less dangerous," Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CFRB), claimed in a statement. According to her, policymakers need to be honest with the American people and present a plan to "bring our debt under control." (Related: DEBT BLOWOUT: US debt has soared $1.2T since debt ceiling suspension – and the Treasury expects to add another $1.5T by year's end.)
Meanwhile, economists are deep into the books to assess the U.S. government's fiscal condition as federal spending is poised to top $6.5 trillion in the current financial year. President Joe Biden has repeatedly asserted that he already slashed the budget deficit by $1.7 trillion. However, Epoch Times' (ET's) Andrew Moran pointed out that Biden's claim was a misleading assertion since most of the decline in federal outlays resulted from the expiration of the Wuhan coronavirus- (COVID-19-) related stimulus and relief spending, rather than employing any fierce budget cuts by the White House or Congress. The government spending may be less than during the pandemic which was around $8.9 trillion but it is 33 percent higher than the pre-crisis level of $4.88 trillion.
ET reported that federal spending has totaled more than 24 percent of gross domestic product (GDP), fueled by Social Security, Medicare, and interest payments within the last 12 months. Also, revenues are down by about 10 percent, according to the Congressional Budget Office (CBO), which makes it more challenging for policymakers and the current administration. Moreover, CBO forecasted that deficits will "fluctuate between $1.6 trillion and $1.8 trillion and then grow to $2.9 trillion in 2033."
Experts further raised concern that a government shutdown is inevitable considering that Congress has failed to approve appropriations legislation or stopgap spending laws as the new fiscal year is to commence and funding for federal programs (except for Social Security payments and the military) is set to expire at the end of September.
Financial markets are also worried. Last month, Fitch Ratings, one of the "Big Three credit rating agencies," downgraded U.S. government debt to AA+ from AAA, with analysts sounding the alarm over "the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance."
Fed won't bend, interest rates to continue to soar
Becoming one of the largest budgetary items, – next to Social Security, which has already topped $1.2 trillion in the first 11 months of 2023 – interest payments are on track to exceed $1 trillion before the current fiscal year is over. As per the estimate, the daily interest spending has increased to about $2 billion over the past full year.
Moran wrote that one of the main reasons why annual budget holes have gained more attention is the significant jump in interest payments in a climate of rising interest rates amid the Federal Reserve's goal to curb inflation. "Since March 2021, the policy rate has climbed by 500 basis points to a target range of between 5.25 and 5.5 percent. Treasury yields have soared, with the benchmark 10-year yield hitting its highest level since 2007," he included in the article and emphasized how Treasury Secretary Janet Yellen seemed to ignore the intensifying debt burdens, alluding to one statistic that measures net interest payments relative to the GDP. "The statistic or metric that I look at most often to judge our fiscal course is net interest as a share of GDP," Yellen told CNBC on Sept. 18. "And even with the rise we have seen in interest rates, that remains at a very reasonable level."
Last year, the ratio was 1.86 percent, mirroring the historical average since 1960. However, the White House Office of Management and Budget (OMB) projects that figure to climb to 2.5 percent this year and then to 2.9 percent in 2024 and 2025. The CBO warned this past summer that the metric could increase to nearly 7 percent of GDP by 2053. "Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices," the budget watchdog wrote in a report.
Even with Biden and House Speaker Kevin McCarthy's (R-CA) Fiscal Responsibility Act, the debt ceiling plan will only skim about $188 billion in interest in the public debt over the next decade. By 2033, the federal government expects to have accumulated more than $17 trillion in deficits and paid about $3 trillion in interest payments, according to the White House's 2024 budget proposal.
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