Based on the most recent information provided by the U.S. Treasury Department, the nation’s overall public debt surpassed the milestone of 34,000 billion USD for the first time ever on December 29, 2023
This development occurred just weeks before the U.S. Congress had to approve a new federal budget allocation plan. It also happened merely three months after the U.S. public debt crossed the 33,000 billion USD threshold amidst a sharply rising budget deficit.
Maya MacGuineas, the President of the Committee for a Responsible Federal Budget (CRFB) – an independent, non-profit financial oversight organization, characterized the new U.S. public debt record as an unfortunate milestone.
“Despite the public debt reaching dangerous levels for both the economy and national security, the U.S. government cannot cease borrowing”, MacGuineas shared in a release on January 3rd.
According to CNN, there is a growing concern that the U.S. national debt is on the rise despite the world’s largest economy being in a relatively healthy state, marked by low unemployment rates – typically considered favorable for addressing budget deficits. Traditionally, during economic downturns and periods of high unemployment, governments increase expenditure to stimulate growth.
The issue of public debt has become a contentious point between the Republican and Democratic factions in the U.S., intensifying the deadlock in approving the federal budget and once again putting the U.S. government at the risk of a shutdown.
In recent years, the U.S. public debt under administrations from both political parties has experienced a significant surge. Republicans argue that the federal spending programs proposed by President Joe Biden’s administration are excessively costly, while Democrats contend that the 2017 tax cuts endorsed by the Republican Party – during President Donald Trump’s tenure – resulted in a sharp decline in budget revenues. Additionally, substantial federal Covid-19 relief packages – implemented by both administrations – have also played a role in the swift escalation of public debt.
Meanwhile, White House spokesperson Michael Kikukawa stated that the increase in public debt is primarily due to policies favoring “large corporations and the wealthy” implemented multiple times by the Republican Party, leading to cuts in the budget for social security programs, Medicare, and Medicaid, adversely affecting ordinary Americans.
According to Kikukawa, President Biden has a plan to reduce the budget deficit by approximately 2.5 trillion USD by “making the rich and large corporations pay fair taxes and cutting unnecessary spending on special interests,” including major pharmaceutical and oil companies.
Risk of government shutdown reemerges
Irrespective of party blame, the sharp rise in national debt coupled with political deadlock on the issue has resulted in a downgrade of the United States’ credit rating. In August 2023, Fitch lowered the U.S. national debt rating from AAA to AA+. By November, Moody’s cautioned that there could be a downgrade from the country’s top AAA rating.
In January and February, U.S. legislators must pass the budget for the fiscal year 2024 (commencing on October 1). Earlier, the U.S. Congress had passed two interim spending bills to avert a government shutdown on November 17 of the previous year.
The most recent bill, approved in mid-November, will sustain the current government spending levels until January 19, 2024, prioritizing sectors such as agriculture, military construction, veteran programs, transportation, housing, and the Department of Energy. Funding for all other federal activities, including defense, will expire on February 2, 2024. The extended budget will not encompass additional assistance for Ukraine or Israel.
The Republican-led U.S. House of Representatives, under the leadership, is pushing for a reduction in spending to the levels agreed upon in the June deal on the national debt ceiling. This agreement enables the federal government to meet its financial obligations on time and prevent a potential default. It temporarily suspends the debt ceiling at 31.4 trillion USD for a period of 2 years until January 1, 2025. However, the Democratic-led Senate rejected the Republican proposal to decrease taxes.
Negotiations are currently underway between the leaders of both chambers to determine the highest feasible budget for the fiscal year 2024, as the possibility of a government shutdown looms once again. House Speaker Mike Johnson is advocating for the establishment of a bipartisan debt commission to address what he identifies as the “greatest threat to national security”.
“We still hope policymakers will take even more decisive measures to reduce public debt, such as raising taxes, cutting spending, or establishing a fiscal advisory board – ideally, implementing all of these measures”, said MacGuineas.
The swift growth of public debt in the United States and various other nations is causing significant concern amid recent substantial increases in interest rates. This surge in interest rates has resulted in a considerable rise in the expenses related to servicing the debt. According to data from the U.S. Department of the Treasury, in the fiscal year 2023, the net interest payments on U.S. government borrowings increased by 39% compared to the previous year and nearly doubled compared to the fiscal year 2020.
The Peter G. Peterson Foundation reports that the U.S. government is required to allocate 2 billion USD daily to meet its debt servicing obligations. Forecasts from the U.S. Treasury Department indicate that by the end of March 2024, the government will need to secure an additional sum of almost 1 trillion USD.
Highlighting the severity of the situation, the Peter G. Peterson Foundation emphasized on January 3 that the escalating national debt poses a substantial threat to the future of the U.S. economy.
The organization anticipates that over the next decade, the federal government will have to allocate more funds for interest payments than the combined total expenses for research and development, infrastructure, and education.
According to Reuters.
By. Pham Thanh Bien
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