Today’s environment is unique in my lifetime. We are buffeted by many serious cross currents that are upsetting our normal way of life. We have the pandemic that seems to continue to grow albeit at lower mortality rates as we test more and learn better therapies absent a vaccine. We have protests and riots against police brutality that have morphed into something beyond that issue. We have record unemployment caused by the shutdown of our economy and the struggle to find the balance between controlling the pandemic and getting our economy back on its feet. And we have fiscal deficits the likes of which have never been seen before.
Through June 30, which marks the nine-month point in the fiscal year for the U.S. budget, we recorded a record $2.7 trillion deficit. For perspective, the largest deficit ever was back during the fiscal crisis of 2008-09. That fiscal deficit was just over $1 trillion.
Receipts for the nine month period fell 13% as the shutdown affected incomes and tax payments were deferred until July 15. Outlays on the other hand, ballooned by 49% or $1.65 trillion. Most of this increase was caused by four coronavirus bills that Congress enacted over the past few months intended to offset the impact of the shutdown caused by the virus. For example, the Paycheck Protection Plan doled out $537 billion to keep businesses going and unemployment benefits were up over $250 billion to aid people who lost their jobs. In June alone, the deficit set an all-time record at $864 billion, almost as much as the entirety of last year’s fiscal deficit of $984 billion. In addition to the foregoing, not all of the monies have been spent under the current bills so the current spending will continue as programs become fully funded. Also, as I type, Congress is contemplating another stimulus bill that will probably be in the $1.5 billion range (or larger) to supplement some of the income replacement programs that have already been enacted.
As I mentioned in the previous paragraph, through nine months, the fiscal deficit hit $2.7 trillion, and the nonpartisan Congressional Budget Office has estimated the fiscal year deficit to come in at $3.7 trillion, another trillion dollars greater than through the first nine months. It wouldn’t surprise if the figure is actually greater as the current programs are fully funded and further stimulus in one form or another is approved and spent.
According to the current U.S. Debt Clock, our current public debt amounts to $26.5 trillion, and that includes the $2.7 trillion deficit through June 30. This problem began escalating during the Bush Administration as the debt when they came into office was approximately $6 trillion and they raised it to $10 trillion. The Obama Administration found a way to double it to $20 trillion. The current administration has ballooned it to its current level. It is also more than worth mentioning that our total public debt at the end of this fiscal year will be somewhere above $27 trillion and that will substantially exceed 100% of gross domestic product, again a modern record not seen since the second World War. By the end of the year, we will have added over $21 trillion to our debt in the last 20 years.
Clearly, we have higher priorities right now. The pandemic sits atop the to do list. We need to contain and control the virus with therapies and a vaccine. We need to get our economy going again. The toll from the pandemic is easier to see as we track numbers of cases, number of deaths, etc. The toll from the economic malaise is much harder to track but it is probably greater when you figure all of the financial and psychological strain on our populace. Finally, hardly anyone in Congress seems to care about the level of debt.
The level of debt caused by the egregious deficits is historic. We are mortgaging the future of the country. Our kids and grandkids will be burdened by this debt for years. A greater and greater portion of our public spending is going to go to servicing the debt. We are lucky from an interest rate perspective to have such low rates which mitigates and hides the cost of the debt but eventually, we will have to deal with it. One thing is for sure, taxes are bound to rise as we begin to deal with the debt. Also, debt service will crowd out other programs and expenses, which will make our budget much more difficult to address going forward. High debt levels are insidious whether you are a person, a company or a country.
Jeff MacLellan is retired from Landmark Bank. He spent 37 years in banking, and has been tracking local economic indicators since he came to Columbia in 1987.