In a recent issue of his must-read Committee to Unleash Prosperity Hotline, our friend economist Stephen Moore wrote the federal debt is expected to rocket to 200% of GDP in
the decade to come, but even that financially catastrophic number may be too optimistic.
The new annual report of the Joint Economic Committee finds that the Feds continually underestimate how large the debt will be in the future, wrote Mr. Moore. The debt forecasting errors usually err on the side of smaller deficits and debt than expected. The solid line in the chart below is the actual debt and the dotted lines are the erroneous projections.
So, heads up wrote Steve: If the current forecasts follow this rosy scenario pattern, we’re really screwed as a nation.
And our conservative friend Steve Moore isn’t the only fiscal policy watcher putting the dismal back in the dismal science of economics. The Committee for a Responsible Federal Budget, a think tank that is as about DC establishment as you can get, is also sounding the alarm on federal spending.
In a series of reports released in October of this year the CRFB documented the fiscal disaster that is rapidly overtaking the federal government.
On October 20, the U.S. Treasury Department released the final Monthly Treasury Statement for Fiscal Year 2023 today, confirming the budget deficit totaled $1.7 trillion in FY 2023. After adjusting for the enactment and reversal of the President’s student debt cancellation plan, the deficit roughly doubled between FY 2022 and 2023 from less than $1 trillion to roughly $2 trillion.
In a review of the statement, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said:
We are a nation addicted to debt. The deficit totaled $1.7 trillion in Fiscal Year 2023, but we actually borrowed $2 trillion when you fix the accounting around President Biden’s reversed student debt cancellation plan. That means borrowing doubled from last year. With the economy growing and unemployment near record lows, this was the time to instill fiscal responsibility and reduce our deficits.
Instead, we now face the prospect of paying more to finance the debt we already incurred, let alone the trillions of dollars we are projected to borrow over the coming decade. Interest rates on U.S. Treasury securities are the highest they’ve been in more than 15 years. The federal government spent more on interest than children in 2023, and we’ll spend more on interest than national defense by 2027. In the face of legitimate emergency needs like natural disasters or foreign conflicts, these interest burdens mean we are not as nimble as we otherwise could be to respond.
We need long-term solutions to get our fiscal house in order, beginning with establishing a bipartisan fiscal commission. A commission would provide a platform for lawmakers and experts to have the tough discussions about our massive national debt and how to change our unsustainable fiscal course. Deficits doubling, interest rates rising, major trust funds facing insolvency within the next decade, and emerging security threats are all warnings. To continue to be the strongest country in the world, we should use this as an opportunity to finally fix our nation’s debt.
A few days later the Committee for a Responsible Federal Budget released an analysis of the interest on the federal debt, showing net interest costs reached $659 billion (2.5 percent of GDP) in fiscal year 2023, a $184 billion increase from the previous year.
This huge increase is due in part to the $9.5 trillion increase in debt held by the public between the beginning of 2020 and the end of 2023. But it is also due to much higher interest rates. Newly issued ten-year Treasury Notes paid an average of 3.8 percent in fiscal year (FY) 2023, compared to 2.4 percent in 2019 and 1.1 percent in 2020. Newly issued three-month Treasury Bills paid an average yield of 5.0 percent in 2023, compared to 2.3 percent in 2019 and 0.7 percent in 2020. Rates today are even higher.
At $659 billion, the Committee for a Responsible Federal Budget calculated interest was the fourth largest government program in 2023, exceeded only by Social Security, Medicare, and defense. The federal government spent significantly more on interest than all spending on children. Interest costs also exceeded spending on Medicaid, veterans, food and nutrition services, and more.
There is no reason to believe that Democrats and Senate Minority Leader Mitch McConnell have any interest in cutting federal spending, but House Republicans have made that a cornerstone of their agenda.
The Capitol Switchboard is (202-224-3121), call today and tell your Representative and Senators not to keep kicking the can down the road. Congress must cut spending and bring federal expenditures into harmony with tax collections NOW before our national debt overtakes our ability to pay the interest and support the essential constitutional functions of government.
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