September 8, 2020 — US Government Debt Exceeds Size of the Economy

SEPTEMBER 8, 2020 – US GOVERNMENT DEBT EXCEEDS SIZE OF THE ECONOMY

U.S. government debt is on track to exceed the size of the economy for the 12 months ended September 30, a milestone not hit since World War II, as a result of the coronavirus pandemic.  The federal debt held by the public is projected to reach or exceed 100 percent of US GDP. This would put the US in the same position as Japan, Italy and Greece.  The last time the US debt level exceeded output was in 1946 after years of military funding to help end the second World War.

A booming economy after World War II kept debt levels relatively stable, and a boom in the 1950’s cut the debt-to-GDP ratio to 54 percent, but that isn’t expected to happen this time around. Before the virus hit, Congress had approved measures that widened the budget gap, and having an aging population is pushing up the costs of social security and Medicare.

The US is not alone; Germany, France, Italy and the UK all have recorded jumps in the debt-to-GDP ratios, but the US has seen the largest.  The governments have spent to minimize the recession and keep their economies going; but the rising ratios are unsustainable. Even in a low interest rate environment, interest costs will become a larger share of the federal budget.

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