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The Doubling of the National Debt

Thursday August 28th, 2014   •   Posted by Craig Eyermann at 6:01am PDT   •  

9062263_S Joseph Lawler of the Washington Examiner reports on the state of the portion of the U.S. government’s debt that is held by the public:

The federal debt this year will be double what it was before the financial crisis, Congress’ official budget scorekeeper projected Wednesday morning.

The debt is on pace to reach 74 percent of the country’s economic output by the end of the year, double what it was in 2007 and the highest percentage since 1950, according to the Congressional Budget Office.

In its update to its projections for the budget and economy, the agency slightly upped its estimate for the 2014 deficit, which it now expects to total $506 billion, a $170 billion decline from 2013.

The falling deficits sound like good news, but there are two important things to understand about it. First, falling deficits mean that the national debt is still increasing – just more slowly than they previously were. In this case, assuming things play out as projected, that means that instead of trillion-dollar deficits adding a trillion dollars a year to the nation’s debt, we now have a half-trillion dollar deficit adding a half-trillion dollars a year to the nation’s debt.

The second thing to remember is that the latest deficit projections, which also assume that the United States will never experience another recession, indicate that the current decline in the federal government’s budget deficits is expected to be only a short-lived trend. It is expected to reverse as early as 2016.

Deficits will continue to shrink next year, according to the CBO, lowering the federal debt. But then they’re expected to begin rising again in 2016, eventually bringing the federal debt up to 77 percent of GDP in 2024.

That debt trajectory will have serious consequences if unaddressed, the CBO warns, including “restraining economic growth” and “eventually increasing the risk of a fiscal crisis.”

Would this be a bad time to point out that the preferred policy solution of many of the world’s politicians greatly increased taxes and minor reductions in what would otherwise be the even faster growth of government spending have somehow managed to restrain economic growth and to increase the risk of a fiscal crisis in every place where those policies have been implemented?

So at least we know that those outcomes won’t happen by accident!

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August 2014