With America’s rising national debt hitting the $30-trillion mark, leading economists have warned that a long-term crisis could be imminent and unavoidable.
Per CNN Business, Treasury Department data published on Tuesday reveals that the U.S. Government spent aggressively during the COVID-19 pandemic to help soften the economic damage caused by the crisis. Since the end of 2019, the national debt has sky-rocketed by $7 trillion.
Although economists have yet to reach a collective agreement on the exact scale of the problem, it is considered a ticking time bomb. They are concerned that the latest debt milestone arrives at a time when borrowing costs are anticipated to rise considerably.
As the Federal Reserve goes up a gear into an inflation-fighting mode, the years of rock-bottom interest rates are set to come to an end. With the Fed launching the first in a series of rate hikes since 2015, the mountain of debt is expected to be a lot harder to finance in an economic climate governed by soaring borrowing costs.
David Kelly, Chief Global Strategist at JPMorgan Asset Management, remains pessimistic about the years ahead. He explained that as interest rates will exceed $5 trillion over the coming decade and will account for just under half of all federal revenue by 2051, “we are going to be poorer in the long term.”
Kelly also pointed out that the surge in interest rates will have a detrimental and long-term effect on Washington’s overall spending on other priorities, such as climate change. He explained, “The federal government now owes almost $8 trillion to foreign and international investors, led by Japan and China. Eventually, that will need to be paid back, with interest. That means American taxpayers will be paying for the retirement of the people in China and Japan who are our creditors.”
Although COVID-19 has played an integral part in the looming crisis, Michael Peterson, CEO of the Peterson Foundation, believes that the structural problems that led to the significant rise in debt were already visible long before the pandemic struck. He explained, “Covid exacerbated the problem. We had an emergency situation that required trillions in spending. But the structural problems we face fiscally existed long before the pandemic.”
Peterson points to an aging population and elevated healthcare costs as the principal drivers of the problematic fiscal situation and lays the blame squarely at the doorstep of both the Republicans and the Democrats. Peterson said, “Our current fiscal posture is a result of many years of fiscal irresponsibility from both parties. What’s required to get us out of the situation is honesty and leadership from our elected officials.”