Two Months After Debt Limit Suspension, Borrowing Grows and Grows

On October 17, Congress suspended the statutory debt limit and
let the U.S. government’s spendthrift freak flag fly. As I
wrote at the time
, public debt outstanding jumped overnight by
$328 billion. Woo hoo! Those credit card bonus miles are gonna be
through the roof!

Since then, borrowing has slowed, but certainly not stopped
(hey, we’re talking about the U.S. government, here). Between
October 17, 2013 and December 17, 2013, the total of public debt
outstanding rose from $17.076 trillion to
$17.269 trillion

That’s $17,268,587,651,056.23, if you’re a big fan of

Public debt

If it makes you feel any better, the Congressional Budget Office
expects, in its long-term budget
, public debt to start dropping a bit, soon, as a
percentage of Gross Domestic Product. Unfortunately, that’s just
before it begins a long, steady metastasis that will devour the
country’s economy.

Public debt

The consequences of that rising debt, the CBO says, aren’t

How long the nation could sustain such growth in federal debt is
impossible to predict with any confidence. At some point, investors
would begin to doubt the government’s willingness or ability to pay
U.S. debt obligations, making it more difficult or more expensive
for the government to borrow money. Moreover, even before that
point was reached, the high and rising amount of debt that CBO
projects under the extended baseline would have significant
negative consequences for both the economy and the federal

  • Increased borrowing by the federal government would eventually
    reduce private investment in productive capital, because the
    portion of total savings used to buy government securities would
    not be available to finance private investment. The result would be
    a smaller stock of capital and lower output and income in the long
    run than would otherwise be the case. Despite those reductions,
    however, the continued growth of productivity would make real
    (inflation-adjusted) output and income per person higher in the
    future than they are now.
  • Federal spending on interest payments would rise, thus
    requiring larger changes in tax and spending policies to achieve
    any chosen targets for budget deficits and debt.
  • The government would have less flexibility to use tax and
    spending policies to respond to unexpected challenges, such as
    economic downturns or wars.
  • The risk of a fiscal crisis—in which investors demanded very
    high interest rates to finance the government’s borrowing
    needs—would increase.

It’s certainly reassuring that lawmakers are diligently
hammering out a budget package that actually causes the federal
government to spend more money
in the future than it
would absent the deal and totally ignores the very real fiscal
problems that beset the leviathan in D.C.

from Hit & Run

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