The gross national debt has surpassed $31 trillion, according to a report provided by the U.S. Treasury on Tuesday that tracks America’s daily finances.
Congress artificially capped the U.S. government’s ability to borrow at around $31.4 trillion, putting pressure on an economy already threatened by the worst inflation rate in four decades, rising interest rates, and a strong U.S. dollar.
Even though President Joe Biden has touted his administration’s deficit reduction efforts this year and recently signed the so-called Inflation Reduction Act, which aims to curb high price increases caused by a variety of economic factors, economists say the most recent debt figures are cause for concern.
Rising interest rates, according to Owen Zidar, a Princeton economist, will worsen the nation’s growing debt problems and make the loan itself more expensive. The Federal Reserve has hiked interest rates multiple times this year to battle inflation.
The debt, according to Zidar, “should encourage us to consider certain tax policies that nearly passed through the legislative process but lacked sufficient support,” such as imposing higher taxes on the wealthy and closing the carried interest loophole, which permits money managers to treat their income as capital gains.
Zidar stated, “If you weren’t concerned about the debt before, you should be now, and if you were concerned before, you should be even more concerned.”
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Earlier this year, the Congressional Budget Office released a report on America’s debt burden, warning in its 30-year prognosis that, if left unchecked, the debt could soon soar to new heights, threatening the U.S. economy. The CBO cautioned that investors could lose faith in the U.S. government’s capacity to service its debt, which would lead to an increase in interest rates and inflation.
The U.S. will be obliged to spend “significantly” more on interest payments as interest rates increase, as they are now under the Federal Reserve’s rate-hike regime, according to the CBO. This might weaken the United States’ fiscal position, it was noted.
“Debt-dependent”
In its August Mid-Session Review, the administration predicted that this year’s budget deficit will be nearly $400 billion less than it estimated in March, due in part to stronger-than-anticipated revenues, reduced spending, and an economy that has recovered all jobs lost during the multiyear pandemic.
The Office of Management and Budget announced in August that this year’s deficit will decrease by a total of $1,7 trillion, the greatest annual fall in the federal deficit in U.S. history.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in an emailed statement on Tuesday, “No one should be happy of this new record.”
In the previous 18 months, inflation has reached a 40-year high, interest rates have risen in order to battle inflation, and there have been a number of budget-busting laws and presidential acts, according to MacGuineas. “We are dependent on debt.”
A Treasury Department representative was not immediately available for comment.
A professor of economics at Loyola Marymount University, Sung Won Sohn, stated, “It took this country 200 years to amass its first trillion dollars in national debt, and since the pandemic, we have been adding 1 trillion dollars virtually every quarter.”
Predicting significant inflation in the “foreseeable future,” he stated, “you will pay the price later if you raise government spending and the money supply.”