According to the Congressional Budget Office (CBO), the U.S. budget deficit will grow from three percent of gross domestic product (GDP) today to six percent of GDP by 2040. (Source: Congressional Budget Office, June 16, 2015.)
With the CBO expecting GDP in 2040 to be $31.4 trillion, six percent of that number would equate to a budget deficit of $1.88 trillion!
I cut some numbers and did the math. I asked: what would happen to our national debt if the annual budget deficit were only three percent of U.S. GDP through to 2040? The total deficit for the next 25 years would be $18.4 trillion, doubling our national debt to $36.0 trillion—my projected national debt that I have talked about and forecast many times in these pages.
But, dear reader, we won’t have to wait until 2040 for our “official” debt to double to $36.0 trillion. It will happen a lot sooner.
Also Read: U.S. National Debt to Double; Here’s Why
Why the U.S. Government’s Debt Will Soar
The figures the CBO gives us are naïve. They don’t account for any economic slowdown, wars, or any other factor that can force the government to spend a lot more than it already does.
After the Credit Crisis of 2008, our government went into high spending gear to stimulate the economy. Until 2012, the U.S. government incurred budget deficits of over $1.0 trillion annually. If there’s another similar crisis, it’s foolish to believe the government won’t spend at that pace again.
This isn’t all. There are other factors that could send our national debt skyrocketing in a very short period: student debt; unfunded pension liabilities; deficient budgets at the state and municipal levels; subprime auto loans; and a Social Security model that is insufficient to support America’s growing retiree population.
Since the first quarter of 2013, on average, over $28.0 billion worth of student debt has become delinquent each quarter. (Source: Federal Reserve Bank of New York, last accessed June 19, 2015.) That is over $120 billion a year in student loan defaults! Yes, dear reader; you read that right: $28.0 billion a month in student debt is becoming delinquent. Where is that in the government’s budget deficit calculation?
The U.S. government has become a major player in the student loans market. As student debt defaults soar, the government will be forced to write off these debts, accelerating our national debt. Student debt in this country now stands at $1.18 trillion.
At the state and municipal levels, fiscal problems are intense. There simply isn’t enough money coming in to cover the pension liabilities states and municipalities have promised. Will the federal government come to the rescue here, too?
A Rational Look at U.S. National Debt
The U.S. government and the politicians that run it are addicted to spending more money than there is coming in. This has always been the problem. If the government were a business, it would be broke. The bigger our debt becomes, the higher the risk to the U.S. dollar and, ultimately, the wealth of Americans is at risk.
Who will buy the Treasury Bills we need to sell to finance our ever rising national debt? The Chinese aren’t buying more. Neither are the Japanese. But it’s okay; our friendly Federal Reserve can simply print more money again and give it to the government to spend.
Hence, the saga continues. With one hand the government doles out money. With its second hand, it issues T-bills so it can borrow the money it spends. With its third hand, it prints money to buy those T-bills. What a racket.