CBO: U.S. Can't Reduce National Debt and Budget Deficit at Expense of Economic Growth
NEW YORK – March 2, 2019
According to experts responsible for assessing and forecasting trends in the US federal budget, the volume of its deficit, and with it the size of the national debt, will continue to rise, despite fairly high GDP growth rates.
The Director of the Congressional Budget Office (CBO), Keith Hall, spoke about it in an interview with TV channel Bloomberg, noting that despite US GDP growth rates of over 3% in some quarters of 2018, the US budget deficit increased by $800 billion. The deficit, according to CBO estimates, will rise to $1 trillion over the next few years and "will remain above this level."
Answering the question of whether the US has to put the situation with financing the budget in order, Keith Hall noted that this issue is of great importance. “We are already feeling the consequences of the current situation.” Over the past year, the GDP grew by almost 3% and the budget deficit increased by almost $800 billion. Subsequently, after the stimulating effect of tax relief will fade away, the economy will slow down and the ability of the authorities to allocate costs in the context of lower economic growth will also be reduced. The problem with the budget deficit has become too big to simply “grow out of it” by raising the GDP. And besides, there is the problem of interest payments on debt. The cost of servicing public debt is growing, and in the future, these costs will be an increasing part of the federal budget.
At the same time, Hall believes that the US is unlikely to cope with the problem of shortage due to high economic growth.
In an interview with CNBC on the same day, the CBO director also compared the US military spending and the funds that the US authorities will have to spend on servicing the national debt:
“We are starting to spend more and more on interest payments on state debt. One striking aspect of the recent CBO projections is that over the next 10 years, the amount that will have to be paid on interest payments on public debt will exceed the total amount of US defense spending during the same 10 years.”
The Deputy Director of the CBO, Teresa Gallo, speaking at Congress on February 27, 2019, noted that over the past 50 years, the US budget deficit averaged 2.9% of GDP. At the same time, according to the Ministry’s, in the period 2020-2029, the budget deficit will increase on average to 4.4% of GDP.
In modern US history, a similar level of budget deficit was observed only twice during such a long period (10 years): after World War II and several years after the financial crisis and recession of 2007–2009.
The CBO's forward-looking estimates sound quite clear, signaling that the US could achieve a reduction in the growing fiscal imbalance mainly due to a reduction in budget expenditures.
This implies major changes in a number of key social programs, in particular, social welfare and health care, whose ineffectiveness was noted by Fed Chairman Jerome Powell, as well as raising the retirement age, as mentioned by Harvard University economics professor Martin Feldstein.
In other words, American experts and officials are beginning to hint more and more clearly that it would be nice for the US to carry out structural reforms and start reducing excessively inflated expenses. Globalist structures have previously appealed to developing countries with such advice through the International Monetary Fund and the World Bank, but it seems that the US will now have to take on the shock therapy.