America’s public debt problem is no longer an issue which can be swept under the rug: Everyone from Wall Street veteran Jamie Dimon to Fed Chair Jerome Powell is sounding the alarm.
But while some of the most influential figures in the economy are calling for an action plan, the government has continued to spend at a rate which will add $2.1 trillion to the country’s bill by 2034.
That’s according to the latest report from the Congressional Budget Office (CBO). In February the CBO said its predicted deficit for the year was $1.5 trillion, growing to $2.6 trillion by 2034.
However in a report released this week the CBO wrote: “In CBO’s current projections, the deficit for 2024 is $400 billion (or 27%) larger than it was in the agency’s February 2024 projections, and the cumulative deficit over the 2025–2034 period is larger by $2.1 trillion (10%).”
Currently America’s national debt stands at $34.7 trillion—though the figure itself is not what has so many economists worried. Instead, experts are concerned about America’s debt-to-GDP ratio, which indicates how much the country owes versus what it produces and thus, how able it is to pay it back.
The CBO didn’t have stellar news on that account either. It reported debt held by the public will rise from 99% of GDP this year to 122% by 2034—surpassing its previous high of 106% in 1946, at the end of the Second World War.
And war is, once again, one of the major factors contributing to America’s ongoing outlays. The CBO adds: “The largest contributor to the cumulative increase was the incorporation of recently enacted legislation … which added $1.6 trillion to projected deficits.
“That legislation included emergency supplemental appropriations that provided $95 billion for aid to Ukraine, Israel, and countries in the Indo-Pacific region.”
On top of the initial legislative hit is the ongoing funding obligations America is legally required to uphold, boosting outlays by $900 billion through to 2034.
While financial support to nations at war forms a chunk of the increase between the February 2024 projection and this month’s, other obligations form the crux of America’s tab.
What the CBO defines as mandatory spending includes the likes of Medicare and Social Security, as well as defense spending and unemployment compensation. The CBO wrote: “The aging of the population causes the number of beneficiaries of Social Security and Medicare to grow faster than the overall population. In addition, federal costs per beneficiary for the major health care programs continue to rise faster than GDP per person.
“As a result of those two trends, outlays for Social Security and Medicare increase in relation to GDP from 2024 to 2034.”
‘Predictable crisis’
Experts remain divided on how much of an issue public debt will prove to be—and it comes down to how necessary they believe the spending is, and their outlook for the economy moving forward.
Those on the bullish end are hopeful that an uptick in economic growth will offset the debt and interest payments in future. They also add that the vast majority of spending in recent years—under various political parties—has been absolutely critical for the country to navigate the likes of the coronavirus pandemic.
On the matter of economic growth, the CBO disagrees with this outlook. In its June update the nonpartisan organization wrote it expects the economy to grow more slowly in calendar years 2024 and 2025 than it grew in 2023, averaging roughly 1.8% between 2026 and 2034.
On the more cautious side of the argument are those who, while conscious of the nature of spending in recent years, want to see administrations exercise more restraint—or at least set out a plan for how they will curb outlays in the future.
Among those is JPMorgan Chase CEO Jamie Dimon and former Speaker of the House Paul Ryan. Earlier this year at an event at the Bipartisan Policy Center, Ryan described the debt spiral as the “most predictable crisis we’ve ever had,” which Dimon heartily agreed with.
Likewise, professor Joao Gomes, vice dean of research at the University of Pennsylvania’s Wharton School, has long warned of the “severe and … probably irreversible scars on our economy and society” if federal spending continues unchecked.
Prior to appearing before the U.S. Senate Committee on the Budget in April, professor Gomes told Fortune: “It could derail the next administration, frankly. If they come up with plans for large tax cuts or another big fiscal stimulus, the markets could rebel. Interest rates could just spike right there, and we would have a crisis in 2025. It could very well happen. I’m very confident by the end of the decade one way or another, we will be there.”
