Skyrocketing Federal Debt means the Next Recession 2020 will be harder to overcome

The Congressional Budget Office says the U.S. deficit is reaching its highest levels since the end of World War 2, when considered as a share of the total economy. In the next decade, it's projected to grow by $800 billion more than originally expected, due to spending, tax cuts and slower economic growth. Welcome to The Atlantis Report . Even as the president is weighing what he would try doing if the U.S. economy slows down, there are stunning new figures about how the federal deficit is growing worse than projected. The news came yesterday from the nonpartisan Congressional Budget Office. In fact, as a share of the total economy, the deficit is now reaching its highest levels since the end of World War 2. Let's take a closer look at what is behind the jump and how the debt could limit some of the choices in the event of a future downturn. The deficit is now expected to close in on 1 trillion dollar this year, and then stay over $1 trillion for every year on the horizon.Due to recent changes in policy and the economy, deficits over the next decade will be $800 billion higher than it projected just a few months ago. Those changes include a trio of debt-pushers. The bipartisan budget deal is raising spending, the Republican tax cuts are lowering revenue, and the economy overall is slowing down. I want to depict to people the long-term issue here. Let's look at what the deficits are projected to be now for the next few years. Look at that, $1 trillion in 2020 , $1.2 trillion in 2023 , $1.3 trillion in 2025, as far as the eye can see, $1 trillion and above deficits for the next decade . And let's look at how this relates to GDP and the curve historically. The high peak there was during World War 2. And we now see that we are on a path to near those levels that we were hitting in World War 2. This level of debt is unsustainable. But what does that really mean to the average American? What will happen if we do keep on this trajectory? And the trajectory is a stunning one, the chart shows, because the fact that we are at the debt levels that are highest they have ever been relative to the economy, other than just after World War 2, without having fought in a war, a world war, sort of shows you that this is a very different situation. This is self-imposed by a lot of policy choices. The reason this matters to American families is a number of issues. First, it can have negative effects on the economy. It slows economic growth at a very time when we should be thinking about how are we going to grow the economy, both immediately, but also in the long-term, because we have a lot of challenges based on aging. Secondly, it affects your overall budget. If you're spending money on interest payments, you're not spending that on important public policies. And we do have interest payments that, despite very low rates, because we have so much debt, are going to keep growing as a size of the budget. I think really on people's minds right now, though, is the fact that if and when you have a recession, you want to use borrowing to fight that recession. That's what fiscal stimulus is. And yet, when we enter the next recession, our debt relative to the economy will be twice as high as when the recession of 2008 hit. That means both monetary policy and fiscal policy, those toolboxes are somewhat depleted, which means fighting the next recession will be much more challenging. And the Congressional Budget Office looked at some of the headline policies that we have been talking about lately, including the Republican tax cut. And, briefly, they didn't change their forecasts that they don't believe those tax cuts will pay for themselves. But they also found that, last year, corporate tax revenues were actually lower than they expected. Now, they said it's too soon to conclude if that is directly related to the tax cuts or not. But how big of a deal those tax cuts are in terms of the budget and economy in the future? It's a huge deal, for a number of reasons. First, when we did tax reform, which was absolutely necessary, we should have done it in a way that did not add to the debt, either by getting rid of a lot of tax breaks, raising other revenue, cutting spending, but we should have done revenue-neutral tax reform. The fact that we didn't means it will have less of a positive effect on the economy. I think we're already seeing that. It also kind of poisoned the political waters. And it makes it more difficult for us to move forward on doing what we need to do to actually fix the debt. But people who were saying at the time, oh, these tax cuts will pay for themselves, that was always a fairy tale. It is still a fairy tale. And you add to that these spending increases. This is an era of just charging everything on the credit card, and it is going to make the economic challenges of the future ever so much more difficult. Another policy that the Congressional Budget Office looked at is trade policy and current tariffs. And they found also interesting things there. Among their findings, they found that the tariffs would have — impact the economy, bring down GDP slightly, about 0.3 percent, but also have a bigger impact on imports. Biggest industries affected would be agriculture and farming. So not too many surprising — surprises there. But, my bigger question overall is, this seems like an issue like climate change, where we know it looks like there is a large problem ahead. It could be avoided if we take action now. why is it that lawmakers in Washington are not having a serious debate about what to do over our fiscal health? I do think that is the perfect thing to liken it to.It's an issue where there's no action-forcing moment. People are doing their best — some people are doing their best, I should say, to pretend that it's not really a problem. And you're hearing that more and more, don't worry about the deficit, interest rates are low, we should borrow so much. This, of course, is a very dangerous path to be taken on. But I think it boils down in many ways right now to, nobody is willing to make hard policy choices. And fixing the federal deficit requires increases in revenues and controlling spending. There's no way around it. But in this highly partisan time, where the parties are fighting against each other, they would rather give things away than kind of level with the American people about what we need to do to budget responsibly. And this bodes so poorly for the future, both if and when we're hit by a recession, but longer-term issues, everything from the changes in technology and the work force, the need to update our social contract, aging of the population. These are the issues we should be talking about in the budget. But, instead, I feel like we have got a competition of kind of false promises and giveaways between our politicians these days. We will keep looking at this. Obviously, this will affect many generations.








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