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AP Explains: US Debt Will Soon Exceed Size of Entire Economy

Associated Press

   WASHINGTON - The U.S. government's war against the coronavirus is
   imposing the heaviest strain on the Treasury since America's drive to
   defeat Nazi Germany and imperial Japan three-quarters of a century ago.

   The Congressional Budget Office has warned that the government this
   year will run the largest budget deficit, as a share of the economy,
   since 1945, when World War II ended. Next year, the federal debt -- the
   sum of year-after-year annual deficits -- is forecast to exceed the
   size of the entire American economy for the first time since 1946.
   Within a few years, it's on track to set a new high.

   Most economists consider the money well-spent, or at least necessary.
   Few think it's wise to quibble with the amount of borrowing deemed
   necessary to sustain American households and businesses through the
   gravest public health crisis in more than 100 years. That's especially
   true, economists say, when the government's borrowing costs are very
   low and investors still seem eager to buy its debt as fast as the
   Treasury issues it.

   Here's a closer look at the federal debt and the government's use of it
   to combat the pandemic and the economic pain it's inflicted.

   Just how much money are we talking about?

   The annual deficit -- the gap between what the government spends and
   what it collects in taxes -- will hit $3.3 trillion in the budget year
   that ends September 30, the CBO projects. That amounts to 16% of
   America's gross domestic product, which is the broadest measure of
   economic output. Not in 75 years has a deficit been that wide.

   The federal debt, reflecting the accumulated deficits and the
   occasional surplus, is forecast to reach 100% of GDP next year. Then it
   is predicted to keep climbing to $24.5 trillion -- 107% of GDP -- in
   2023. That would snap the record of 106% of GDP set in 1946. (The
   percentage does not include debts that the government agencies owe one
   another, including the Social Security trust fund.)

   Why is the budget so lopsided?

   The U.S. government was already deeply in debt even before the virus
   struck in March. The budget had absorbed the expenses of the 2007-09
   Great Recession, the federal benefits for the retirements of the vast
   baby boom generation and the cost of President Donald Trump's 2017 tax
   cut. Last year, the debt burden reached 79% of GDP, the highest share
   since 1948.

   Then came the pandemic. The economy tumbled into a sickening free fall
   as businesses shut down and millions of Americans hunkered down at home
   to avoid infection. GDP collapsed at a 31.7% annual rate from April
   through June, the worst three months on records dating to 1947. In
   March and April combined, employers slashed a record 22 million jobs.

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