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By the end of June, the deficit reached more than 13% of the GDP, which is greater than the percentage during WWII, as well as the Great Recession of 2009. In 2009, the deficit accounted for 9.8% of the GDP and around 40% of the total federal spending. After this Recession, the budget deficit did fall on both accounts till 2015, after which it has been rising again steadily. The Congressional Budget Office (CBO) reported in April that they expect the deficit to hit almost 18% of the GDP or around $3.7 trillion. Furthermore, according to their projections, the deficit would come down to $2.1 trillion by the 2021 fiscal year.
Budget Deficits Build Up The National Debt
The National Debt stands at more than $26.5 trillion as of July 31. Another problem with the high national debt is the high-interest payments. In the 2019 fiscal year, the government paid $375 billion in interest on the national debt, which accounted for more than 8% of the total spending. These interest payments as a percentage of total federal spending have been on the rise since 2015, but they are nowhere near bad as recorded in past years. For instance, in fiscal 1996, the interest payments came to more than 15% of total expenditure.
According to other observers, if the national debt is not controlled, it could use up so much of investor’s funds that private-sector borrowers will not be able to catch up. As of now, that doesn’t seem to be the problem, though, as governments around the world are trying to maintain low-interest rates to combat the coronavirus crisis.
According to the CBO, other consequences of an increasing national debt include rising interest payments, depressed economic output and productivity, and higher chances of a fiscal crisis. On the other hand, some economists argue that the government should fund its expenditures by creating money themselves rather than through debt.
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