CBO: $3.7 trillion federal deficit this year

  • 28 April 2020
  • NormanL

The Congressional Budget Office released a revised economic forecast for the year and the news is downright ugly:

In the second quarter of 2020, the economy will experience a sharp contraction, and CBO’s current economic projections include the following:

Inflation-adjusted gross domestic product (real GDP) is expected to decline by about 12 percent during the second quarter, equivalent to a decline at an annual rate of 40 percent for that quarter.

The unemployment rate is expected to average close to 14 percent during the second quarter.

Interest rates on 3-month Treasury bills and 10-year Treasury notes are expected to average 0.1 percent and 0.6 percent, respectively, during that quarter.

For fiscal year 2020, CBO's early look at the fiscal outlook shows the following:

The federal budget deficit is projected to be $3.7 trillion.

Federal debt held by the public is projected to be 101 percent of GDP by the end of the fiscal year.

Those are just projections -- the numbers could easily change based on circumstances. What we can say for certain is the amount of debt added to the already staggering pile is horrifying. Yes, there's a school of thought which says this debt is unavoidable, essential and, because interest rates are low, entirely manageable.

We are less optimistic about the long-term prospects for low interest rates (barring extreme financial repression, of course). Should rates be forced up to counter inflation -- a traditional side-effect of printing money like it's going out of style -- then every drop of red ink we add today becomes and outsided bucket of trouble tomorrow.

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