Would You Like More Debt? If so, Then You Are in Luck.

The CBO(Congressional Budget Office) released their March 2017 10-year budget and economic projections and let me tell you, it does not look good. As of right now, 77% for the federal debt is held by the public. The CBO states that “if current laws generally remained unchanged, the Congressional Budget Office projects, growing budget defictis would boost that debt sharply over the next 30 years; it would reach 150% of GDP (Gross Domestic Product) in 2047.” This is becoming a much bigger issue right in front of us and many politicians are not combating source of the problem. The reason? It deals with Social Security.

The baby boomers are getting closer and closer to retiring and with medical industry helping life expectancy to grow, then causes  the amount of spending to increase dramatically over time. The CBO also projects “rising health care costs per person…in part because of the effects of new medical technologies and rising personal income.

Lets not forget rising interest rates as well. As they go up, as does the interest rate on payments that the United States make on the debt that is outstanding. An example of this is the upcoming debt ceiling on April 28th. We are projected to hit the “credit limit” on our spending and if we do not raise the ceiling, we will default on our credit. Which means, our credit score as a nation will lower and U.S. bonds/securities that are owned by investors will no longer be considered fail proof. There will obviously be a political battle over this but what matters is that we need to borrow more money. Thus, the higher interest rates, kill us in the long run.

If we were to continue on the current path, without much change to spending and laws, we would still be in trouble for the future. Congress would have to be much more careful in spending money since there will be little money to do so. This leads to less money for unexpected events such as natural disaster relief and economic relief. Remember, much of the money that is spent by the government comes in the form of taxes and selling of bonds/securities, which anyone in the world can buy. However, if the economy is in turmoil, then it would be difficult to convince investors to buy bonds, if rates are not high enough.

Lawmakers are in for some hard deliberation but they do not have much time to act. Even if they decide to keep spending at this level and not increase revenue in any manner, then we will be heading into some hard times. An economic downturn would make our situation much worse as well and since recessions tend to come every 7-9 years, then we must surely expect one in the upcoming years. Congress has the power to fix and get the nation prepared for the upcoming baby boomer retirees, but this “do-little” Congress is not united, even with one party behind the wheel.

Please feel free to read the entire report at https://www.cbo.gov/publication/52480

 

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