Wednesday, August 25, 2021

The Congressional Budget Office Forecasts Highest Debt:GDP Ratio Since World War II

The most recent Congressional Budget Office (CBO) forecast is projecting government debt levels in the U.S. not seen since World War II. According to a CBO report released on July 21:

“After all the government’s borrowing needs are accounted for, debt held by the public rises from $21.0 trillion at the end of 2020 to $35.8 trillion at the end of 2031 in CBO’s baseline projections. As a percentage of GDP, debt at the end of 2031 stands at 106 percent, about 6 percentage points higher than it was at the end of 2020 and nearly two and a half times its average over the past 50 years.”

As for the federal budget deficit as a share of GDP, things aren’t looking good there either according to CBO forecasts:

“CBO projects a federal budget deficit of $3.0 trillion in 2021 as the economic disruption caused by the 2020–2021 coronavirus pandemic and the legislation enacted in response continue to boost the deficit (which was large by historical standards even before the pandemic). At 13.4 percent of gross domestic product (GDP), the deficit in 2021 would be the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year.”

Growing levels of national debt and deficits are never good news but they are particularly troublesome when the rosy forecasts for GDP growth this year have started to dim as a result of the economic hit coming from the upsurge in the Delta variant of COVID-19.

On August 19, Goldman Sachs reduced their GDP estimate for the third quarter from a robust 9 percent to 5.5 percent. Goldman Sachs cited Delta’s impact on reduced consumer spending on “dining, travel, and some other services” as the reason for their sharp cut of 3.5 points from their earlier GDP forecast.

Read the rest here.

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