Debt to GDP worse than Greece’s crash of 2008

President Joe Biden
President Joe Biden

President Biden on Wednesday pitched a new plan to Americans before a joint session of Congress: more spending.

The just-released $1.8 trillion plan, presented just weeks after Biden signed a $1.9 trillion in COVID relief spending into law, includes “free” community college as well as universal preschool for all three and four-year-olds.

“Mr. Biden could usher in a new era that fundamentally expands the size and role of the federal government,” The New York Times reported.

The announcement comes months after the Congressional Budget Office released a report projecting a $2.3 trillion deficit in 2021.

Biden’s plan will almost certainly make the deficit worse. Though the plan contains various tax increases to fund its programs, the taxes are likely to fall well short of government outlays, economists say.

“The laws of economics are more rigid than the laws of the federal government, and these tax hikes are unlikely to yield the windfall Biden expects,” Joshua Jahani, the managing director of Jahani and Associates, noted in a recent NBC News article.

As a result, the $28.2 trillion national debt will swell even faster. Worse, when unfunded liabilities are included in the balance sheet, as private companies are legally required to do, the debt exceeds $120 trillion.

How much risk these obligations present is unclear.

There is a school of thought that suggests these debts pose no serious risk. After all, in theory, a government can roll over its debt indefinitely. However, in a recent article for the Federal Reserve Bank of St. Louis, economist David Andolfatto noted that ultimately the government doesn’t decide how much debt is bearable. The market does.

“There is presumably a limit to how much the market is willing or able to absorb in the way of Treasury securities, for a given price level (or inflation rate) and a given structure of interest rates,” Andolfatto wrote. “However, no one really knows how high the debt-to-GDP ratio can get. We can only know once we get there.”

Read the rest at: fee.org

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