US deficit projected to hit $1T milestone in 2020


The Congressional Budget Office projects USA federal government debt will rise to $31.4 trillion over the next ten years.

If debt as a share of GDP is higher at some point decades in the future, he said investors could lose faith in the ability of the USA government to continue to manage the high deficits, leading to expectations of higher inflation and interest rates and resulting in a "more hard fiscal situation".

CBO said the problem is on both sides of the ledger. Today's numbers might represent an optimistic scenario since they assume a revenue spike due to the scheduled expiration of tax cuts in 2025.

The gap between those is the deficit, and it's only going to get worse, the analysts said.

Over that same period, that debt held by the public as a share of the economy will grow from 81% of GDP this year to 98% by 2030 - the highest percentage since 1946.

While the economy is now growing and the unemployment rate is low, the CBO report has some grim news for the future, with economic growth slowing from 2.4 percent in 2019 to 2.2 percent in 2020 and then averaging 1.7 percent through the rest of the decade. But the agency said economic changes, including revising interest cost projections downward by $441 billion, offset some of the deficit increase, resulting in the net projected deficit expansion of $200 billion.

It hasn't topped US$1 trillion since 2012 and fell to US$585 billion at the end of President Barack Obama's second term in 2016.

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The government is projected to break that record in 2028.

But Obama's deficits came as the USA economy recovered from the deep recession of 2007-2009. And during the past 50 years, deficits have averaged 1.5 percent of GDP when the economy was relatively strong (as it is now).

"Ignoring what is staring us right in the face is fiscal malfeasance".

The CBO forecasts a federal budget deficit of $1 trillion this fiscal year, which runs through September. That's almost double the $16.8 trillion Mr. Trump ended 2019 with.

Interest on the debt will grow by 114 percent in dollar terms ($437 billion) and by 0.8 percent of GDP. Not only is population growth slowing, sapping the economy of productive workers, but deficits also will tamp down on the economy's potential by crowding out private capital and market decisions. "Although an increase in government borrowing strengthens the incentive to save, the resulting rise in saving is not as large as the increase in government borrowing".

This report is the latest in that series-and it shows a cumulative 10-year deficit that is slightly larger and a cumulative 30-year deficit that is notably larger than those in CBO's previous projections.

Predictably, each party blamed the other. Kentucky Congressman John Yarmuth, chairman of the House Budget Committee, said on Tuesday the CBO forecast "confirms that President Trump's economic policies did not create a sustained boost for the economy like he has claimed".