(Bloomberg) -- The cost of servicing US debt has surged in recent years. The perpetual threat of a government shutdown or even default comes thanks to political dysfunction that’s seemingly put solutions out of reach. At some point, the failure to tackle America’s large and growing budget deficit is going to hit the wallets of ordinary Americans. And hard.
In the Bloomberg Originals mini-documentary America’s Looming Debt Spiral, we spell out the potentially dire consequences that may flow from the continued inability of the world’s largest economy to manage its finances.
The US government is currently spending more to pay interest on its $33 trillion national debt than it does on national defense, according to the US Treasury’s monthly statement. In the current fiscal year through August, the Treasury has spent $807.84 billion in interest on its debt securities. The Department of Defense’s outlay for military programs totaled $695.44 billion in the same period.
Of course, this is far from a new problem for Washington—it’s long spent more than it takes in, given the political perils of tax hikes or spending cuts to social safety nets that a wide swath of Americans depend on. It was a decade ago in the slow-growth aftermath of the financial crisis that the US gross federal debt surpassed gross domestic product. The debt-to GDP ratio stayed relatively stable until 2020, when the coronavirus swept across the planet, killing millions and cratering economies.
In the US, emergency pandemic aid and subsequent spending on infrastructure added to the financial burden of earlier tax cuts for the wealthy and corporations, sending the national debt spiking upwards. As recently as April, the debt was the equivalent of 120% of GDP.
While the outlook may seem grim, the past shows the US budget can be balanced—like the Clinton administration did in the late 1990s. But as America’s Looming Debt Spiral shows, the path back to fiscal prudence is getting longer, the consequences of doing nothing are becoming worse—and time is running out.
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