• Jeremiah D Folia

COVID-19 Debt Could Ruin The Nation


Photo Credit: Matt Rourke/AP, House Intelligence Committee and House impeachment managers, walk to the Senate chamber on Capitol Hill in Washington, Jan. 16, 2020.

The Coronavirus pandemic has claimed the lives of many, but it is also claiming the US economy. The nation was already at $23 Trillion in debt before the virus struck. The first round of relief increased the debt over $2 Trillion, placing the US at $25 Trillion in debt. Congress is pushing forward another relief bill of $3 Trillion.


Why are politicians so open to spend money we do not have? First, they're focusing on interest rates. Their current goal is not to pay off debt but keep the people alive. Since we can still afford interest payments on the new debt, around $600 Billion for the year, they see an opportunity to borrow more. The problem is that the debt has already close to annual GDP, meaning if the entire GDP was directed to pay off the US Debt, it couldn't. Still many politicians, especially democrats, are advocating for increased spending to "improve" different government programs because interest rates are the lowest they have been in a long time. They are not looking 20 years into the future to when our debt materializes.


What Long-Term Impact?

At this point, I'm sure you're thinking, "well, the increased spending is temporary so the impact on the nation is not long-term," but that is not the case. Debt was increased to bail out hundreds of companies. Many are giant, well known corporations like Walgreens, and after the first round of government assistance they are already broke again. The companies do not want to lay off employees, and they don't want to default on any loans - they want to continue business as usual (or as close to usual as possible) without taking the hits that the rest of the economy is taking. Once the situation is over, these corporations are not going to suddenly be "ok." They are going to require up to another year, and billions of dollars more of support. This is an issue the government has had for the last 40 years. As long as the economy is "stimulated" and companies are given assistance to keep the economy in shape, the government can't completely withdraw from assistance or it would decrease economic growth. It's counter-intuitive.


Programs like Social Security cannot sustain themselves any longer and benefits will no longer be paid out to those born after 1970. While the fund could be refilled with further debt, and it most-likely will be, it raises a question of fiscal responsibility.


What will happen if we keep growing debt and never paying it off?

Since the 1980s there has always been a "debt ceiling." At $1 Trillion in the 80's, last year it was $22 Trillion. The ceiling is now suspended. There is no legal limit to the amount of debt that can be accrued.


Most of the debt is owed to Americans, borrowed against the United States. Some is from other countries - mostly China and Japan who own over $1 Trillion dollars of debt each. Foreign debt-holders do not pose much of a risk to the U.S. and it does not give them power over the nation. Their holding of debt stabilizes the exchange rate of their currency. The US has never defaulted on debt, and the risk is low.


Shrinking national debt would increase incomes, and stabilize the value of the dollar. Increased spending lowers incomes and weakens the dollar. The increasing amount of money spent on debt interest each year is almost the size of our defense budget - it could clearly be used in other places.


Is it possible to pay off? Incoming tax dollars can be used to pay off debt. Since the amount of borrowing exceeds the GDP, and public debt alone is 80% of the GDP, the GDP must be raised to do any help. The democrats believe they can raise GDP by providing incentives and "boosts" to the economy through government assistance programs. The Republicans believe they could increase GDP by lowering taxes. Both hypotheses have failed to pay off any debt since they've been utilized. Another way to cut the debt is to simply decrease government spending, but since the government has provided the assistance it has, once the spending is cut it would harm the economy. Raising taxes would raise revenue but that causes a new set of issues, like a deceased motivation to work, and companies outsourcing to lesser taxed nations. Right now, the chance of paying off any debt is bleak. Drastic measures need to take place.


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