If you're ever hosting a dinner party and want your guests to leave, just bring up the $1.9 trillion budget deficit the US government is running this year. They'll all be heading for the doors in no time.
It's such an unsexy topic that former President Donald Trump and Vice President Kamala Harris are barely bringing it up in their appeals to voters. Quite the opposite: Both their economic policy agendas, if enacted, would add to the ever-growing deficit, several nonpartisan groups project.
That's a major problem, though, with everything from your ability to afford a home to the government's ability to deal with emergencies like Covid on the line.
In human terms, running a budget deficit would look something like this: Say you make $2,000 a month and have no savings, but an emergency arises that would bring your total expenses to $3,000 one month. That means you'd have a $1,000 deficit for the month and you're $1,000 in debt.
But no problem, you'll just use your magic credit card to get by now, and next month you figure you'll have to cut back on Ubers and eating out to pay off the debt. But wait — you completely forgot about your best friend's bachelorette party coming up that's going to leave you spending $1,000 more than your income. That means you ran another $1,000 deficit for that month, but now you're $2,000 in debt.
But here's the thing: If you keep letting all the credit card debt pile up without paying it off, eventually credit card companies will stop lending to you because you become such a gigantic walking red flag to them that they realize they're going to get screwed.
When countries run budget deficits, it also means they're spending beyond their means. But in the case of the US, we're not just talking a couple thousand, million or even billion dollars. We're talking trillion with a capital T. For the current fiscal year (government lingo for the special calendar year that begins on October 1 and ends on September 30), the US is running a $1.9 trillion deficit.
The country's debt, an accumulation of the deficits it has run over time, owed to people outside the government (aka "the public"), is even more alarming: $28 trillion. To put that in perspective, that's just about what the entire US economy is worth.
Even Federal Reserve Chair Jerome Powell, who seldom weighs in on what elected officials should do, is concerned.
"It's probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path," Powell said in a "60 Minutes" interview earlier this year.
But in fairness, you might very well be thinking that if they're going to have an adult conversation about anything, shouldn't it be about something more pressing? Or maybe you're thinking, "I mean, the country is already in $28 trillion of debt, what's a couple more trillion?"
Well, I'm so glad you asked.
The US is among a select group of countries that has a great reputation for making all its interest and debt payments on time. That's given us the ability to borrow money, primarily through selling securities like Treasury bonds and notes, at pretty low rates.
But wider deficits tend to go hand-in-hand with owing more money to people who buy US debt, creating more risk for the people who loan us money and likely making them demand higher interest returns from the US government. In turn, since banks and other lenders often base interest rates on US bond yields, that could make it more expensive for everyday Americans to get a mortgage.
Additionally, when the government spends more money to pay interest on its debts, there's less money available to, for instance, invest in new infrastructure. Case in point: The government is set to spend more on interest payments than on national defense, Medicaid and programs dedicated to supporting children, according to Congressional Budget Office projections for the 2024 fiscal year, which ends September 30.
If that weren't enough to make you think, "Hmmm maybe this deficit thing is a problem," here's another fun fact: Higher deficits could usher in more inflation, too.
So if this is such a big problem, why aren't Trump and Harris addressing it?
"Politicians love to deliver gravy and not the spinach," Kent Smetters, a professor at the University of Pennsylvania's Wharton School who studies the budget, said.
There's also a game of chicken going on, he said. "Both sides want to get their stuff in there before sacrifices have to be made." For Republicans, that means solidifying more tax cuts; and for Democrats, getting more government spending out the door. But, eventually, the country risks reaching a point where it can't continue to borrow more money to get by, which will force elected officials to make tough choices about where to cut spending and levy higher taxes.
Covid and the Great Recession have also made Americans "numb" to thinking about the problems associated with rising debt levels, Smetters told CNN.
"In most people's minds, people are much more likely to see the government borrowing money as a positive effect if it helped us get through a crisis."
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