For those who have been following the trajectory of the US budget deficit in fiscal 2020, which as we showed two weeks ago blew out to a nine year high in the first quarter of 2020...
... it will come as no surprise that according to the latest, just released CBO forecast, in 2020 the US budget deficit will rise above $1 trillion, or $1.05TN to be specific when the fiscal year ends on Sept 30, 2020, the biggest deficit since 2011, which is $31BN more than the deficit reached in 2019. Relative to GDP, this year’s deficit would be about the same as last year’s shortfall—4.6 percent of GDP—which is the difference between revenues equal to 16.4 percent of GDP and outlays equal to 21.0 percent of GDP.
As the CBO writes, the US will spend $1 trillion more than it collects in 2020 and deficits will exceed that amount every year for the foreseeable future, in other words in perpetuity. As a share of GDP, the deficit will be at least 4.3% every year through 2030, and will only grow higher after that. That would be the longest stretch of budget deficits exceeding 4% of GDP over the past century, according to CBO, to wit:
CBO currently projects a federal deficit of $1.0 trillion in 2020; in its baseline budget projections, deficits average $1.3 trillion per year and total $13.1 trillion over the 2021–2030 period. Relative to the size of the economy, deficits would remain above 4.3 percent of gross domestic product (GDP) in every year between 2020 and 2030. Other than a six-year period during and immediately after World War II, the deficit over the past century has not exceeded 4.0 percent for more than five consecutive years.
Over the next decade, the CBO whose forecasts are traditionally overly optimistic, expects cumulative deficits to hit $13.1 trillion. And with spending now officially out of control, debt held by the public will be 81% of GDP this year and is projected to reach 98% by 2030. That stems from the combination of tax cuts and projected increases in spending—particularly on safety-net programs such as Medicare and Social Security.
The CBO’s projections assume that Congress will allow current spending and tax law to occur without any changes. Deficits and debt would be larger than projected if Congress extends individual tax cuts beyond their scheduled expiration at the end of 2025.
The biggest irony, however, is when one recalls that during his 2016 campaign, President Trump talked about paying off the federal debt within eight years. In reality, the CBO now expects that by 2030, total Federal debt will rise from $16.8TN currently (excluding debt paid in to Social Security), to a staggering $31.447 trillion in 2030...
... and to grow literally exponentially after that.
In other words, the MMT that will be launched after the next financial crisis, and which will see the Fed directly monetize US debt issuance from the Treasury until the dollar finally loses its reserve currency status, is now factored in.