It’s easy to forget how bad the fiscal situation of the United States actually is unless we are being constantly bombarded by experts telling us the truth of the matter. A recent article details a coming report from the Comptroller General.
Come March 12, the Government Accountability Office is going to put out an assessment of the fiscal health of the federal government and unsustainability is the key takeaway.
The Comptroller General put out a similar report in 2019 and not only has nothing changed since then, but the situation has gotten much worse. The debt is now over $23 trillion and it doesn’t seem like the government is heeding its own warnings.
Officials can’t continue indefinitely spending more than the government receives in taxes without incurring staggering long term costs to borrow from China and other lenders.
Due to the coronavirus, the Federal Reserve has just reduced interest rates .5%. Their speculation is that interest rates will stay low for the foreseeable future. The trouble is the expected interest rate for future debt will likely be higher than historic averages as the US becomes riskier to lend money to as time goes on and the debt to GDP ratio continues to increase.
The imbalance between spending and revenue that is built into current law will lead to the continued growth of the deficit. The situation where the debt grows faster than the GDP of the US means the current federal fiscal path is unsustainable.
Historically, debt compared to GDP has averaged 46%. We are now at 109%, which is worse than it was in the wake of World War 2. But that doesn’t count the off the books transfers like Medicare, Medicaid, and Social Security as part of the debt that every other country in the world includes in their accounting. The true debt to GDP ratio is close to 1000%.
We are going to pay the interest on our debt, which is money that is taken off the table from other programs. Interest payments are non-discretionary spending. If the US defaults on its debt it will have major economic impacts on every country on the planet.
The growing interest payments are going to crowd out all the other expenses in the budget, but we have to pay it so ultimately we are painting ourselves into a corner. As the debt continues to grow and other countries start to believe that the US will not be able to pay that money back, the interest rates on the loans will only get higher and higher over time.
For the second year in a row, the highlighted word in the Comptroller General’s report is unsustainable. More skeptics are coming over to the Power of Zero way of thinking every day.
We are at a period of historically low tax rates. Every year between now and 2026 is a window of opportunity to take advantage of that fact. Every year beyond 2026 is potentially a year will you be forced to pay the highest tax rates you will see in your lifetime. Never in the history of the US has there been a more appropriate time to adopt the Power of Zero paradigm.