Despite President Joe Biden’s deficit reduction efforts, the U.S. starts the new fiscal year with an astonishingly high debt. The country approaches the statutory debt ceiling — an artificial cap Congress has placed on the U.S. government’s ability to borrow — of roughly $31.4 trillion.
According to a U.S. Treasury report that logs America’s daily finances, the country’s gross national debt has exceeded a record $31 trillion. Even though the Inflation Reduction Act has been signed recently by President Joe Biden in an attempt to tame huge price increases due to a wide variety of economic factors, many economists say the latest debt numbers, paired with the highest inflation in 40 years, are a reason for concern.
In a recent statement, the president of the Committee for a Responsible Federal Budget, Maya MacGuineas, said that “This is a new record no one should be proud of.”
She added that “In the past 18 months, we’ve witnessed inflation rise to a 40-year high, interest rates climbing in part to combat this inflation, and several budget-busting pieces of legislation and executive actions.
“We are addicted to debt,” Maya MacGuineas stated.
A report from the Congressional Budget Office earlier this year on America’s debt load warned that, if left alone, the nation’s debt would soon spiral upward to new highs that, ultimately, could put the U.S. economy in danger. The CBO also added that with the rising interest rates, the U.S. would be forced to spend “substantially” more on interest payments. If this happens, investors may lose confidence in the U.S. government’s ability to repay its debt, resulting in a spike in interest rates and rising inflation, said CBS News.
An economics professor at Loyola Marymount University, Sung Won Sohn, claimed that “it took this nation 200 years to pile up its first trillion dollars in national debt, and since the pandemic, we have been adding at the rate of 1 trillion nearly every quarter.” Sohn also predicted high inflation for the “foreseeable future,” saying “when you increase government spending and money supply, you will pay the price later.”
A Princeton economist, Owen Zidar also said that the rising interest rates will exacerbate the nation’s growing debt issues. This, in turn, will contribute to making the debt itself even more costly. In an effort to combat inflation, the Federal Reserve has raised rates several times this year alone.
According to Zidar, the debt “should encourage us to consider some tax policies that almost passed through the legislative process but didn’t get enough support.” Zidar refers to imposing higher taxes on wealthy people and closing the carried interest loophole. This will allows money managers to treat their income as capital gains.
“I think the point here is if you weren’t worried before about the debt before, you should be — and if you were worried before, you should be even more worried,” said Zidar.
According to a forecast from President Joe Biden’s administration, this year’s budget deficit will be nearly $400 billion lower than what it estimated back in March.