CBO warns of rising debt as U.S. economy slows

[February 16, 2023](Comprehensive report by Epoch Times reporter Chen Ting) United Statescongressional budget office(CBO) Director Schwagel (Phillip Swagel) said that the stagnant U.S. economy, rising unemployment, higher interest rates and surging federal debt are all problems that must be addressed.

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On Wednesday (February 15), the neutral, nonpartisan CBO released the “Budget and Economic Outlook: 2023 to 2033” (Link) and Federal Debt and Statutory Limits, February 2023 (Link) two reports. Meanwhile, Schwagel offers his assessment.

“Over the longer term, our forecasts suggest that fiscal policy will have to change to address rising interest costs and mitigate other consequences of high and rising debt,” Schwagel told a news conference. explain.

However, Schwagel declined to predict a recession, noting that economic indicators were mixed. For example, consumer spending remains strong, although some spending indicators have slowed.

Overall, the report suggests that the U.S. economy is likely to stagnate in the short term and the national debt will continue to grow over the next decade.

Debt rises as economy slows

The Budget and Economic Prospects report forecasts slower-than-expected economic growth, along with a larger deficit.

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Economic output will stagnate in 2023 as unemployment rises, according to the CBO. That makes for a poor job outlook, said Peter C. Earle, an economist at the American Institute for Economic Research.

“The CBO report predicts that the U.S. unemployment rate will rise from the current 3.6% to 5.1% this year. If accurate, this will result in a loss of 2.5 million jobs,” Earle told The Epoch Times.

At the same time, the increase in the deficit has also exceeded previous forecasts. The 2023 deficit would be $1.4 trillion, $400 billion more than the CBO projected nine months ago.

The projected deficit over the next 10 years is also higher, at $3.1 trillion more than previously forecast, an increase of about 20%.

A country’s budget deficit is calculated in two ways: in real dollars and as a percentage of the country’s gross domestic product (GDP). Either way, the CBO predicts that the U.S. deficit will increase.

The CBO estimates that over the next 10 years, the annual deficit will grow to $2.7 trillion and rise to 6.9 percent of GDP.

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The good news is that inflation is expected to ease in 2024, falling to 4.8%. However, Earle noted that even that is 2.5 times higher than the average inflation rate over the decades.

The report also predicts that federal debt held by the public is expected to rise from 98 percent of GDP in 2023 to 118 percent in 2033, an average annual increase of 2 percentage points. Federal debt could rise further after 2033 as interest costs and mandatory spending grow, reaching 195 percent of GDP in 2053.

may face this summerdebt ceilingcrisis

The CBO also warned that unless the borrowing cap is raised or suspended, the U.S. Treasury will exhaust its extraordinary borrowing capacity between July and September.

In “Federal Debt and Statutory Limits,” the CBO warned that a federal debt default could occur before July if the government’s April income tax revenue falls short of expectations.

debt limit, also commonly referred to asdebt ceiling(debt ceiling) is the maximum amount of debt that the Treasury Department can issue to the public or other federal agencies. That amount is set by law and has often been increased or suspended over the years to avoid a government shutdown.

“The debt ceiling of $31.4 trillion was reached on January 19 this year. Then, the Treasury Department began to take proven ‘extraordinary measures’ to borrow additional funds.” CBO Director Phillip Swagel said (Link).

“We expect the government’s ability to borrow through extraordinary measures to be exhausted between July and September 2023 if the debt ceiling remains unchanged,” Schwagel said.

The CBO said that without raising or suspending the debt limit until extraordinary measures are exhausted, the government will not be able to fully pay its debts, “and as a result, the government will have to defer payments for certain activities or default on its debt, or both.” Of”.

This forecast may prompt Republicans to demand that the Biden administration cut spending.

For now, Republicans, who control the House of Representatives, want to hold off on raising the debt ceiling until Democrats agree to deep spending cuts. The Democrats said the debt limit should not be “hijacked” by the Republicans. For this reason, the two parties often argue endlessly.

On January 19, after hitting the borrowing limit, U.S. Treasury Secretary Yellen said that the Treasury Department can use cash receipts and unconventional cash management measures to pay debts, federal benefits and other expenses by June 5.

House Speaker Kevin McCarthy and President Joe Biden are negotiating to raise the debt ceiling. McCarthy said any increase in the debt ceiling must be accompanied by an agreement to cut what he called “runaway spending” in the future.

Biden said he would not agree to the preconditions for raising the debt ceiling, which he said represents the confidence and credit of the United States.

Expert: Too much spending in the long run

EJ Antoni, a fellow at the Heritage Foundation, told The Epoch Times that this assessment is not surprising.

“The CBO estimates largely confirm what we already know, which is that starting late this summer, the Treasury will not be able to pay all of its bills,” he said.

“It’s not because of a lack of revenue,” Anthony said. “Whether it’s measured in nominal value, inflation-adjusted value, or as a percentage of income, or as a share of the economy, tax revenue has never been higher. The problem is that Spending too much for a long time.”

Republicans said they would not touch Medicare or Social Security benefits in the debt-ceiling talks. However, some argue that there is no way to address deficit spending without addressing these items, which account for about 30 percent of the state budget.

“The two biggest drivers of increasing government spending in the United States, and the two most easily discussed by politicians, are Social Security and Medicare,” Earle said.

“There will come a point, if not now, then sooner rather than later, when government officials can no longer kick the can into the future,” he said.

English-language Epoch Times reporter Lawrence Wilson contributed to this report

Responsible Editor: Ye Ziwei#