The US is kind of like that person who racked up more in Venmo requests than they can pay. US debt has been growing for decades, but it skyrocketed in the corona-conomy. From April-June, America’s debt became larger than the size of its economy on a quarterly basis. Last week…

  • US debt reached its highest level relative to the size of the economy since WWII. Next fiscal year, debt is projected to be bigger than the US’ GDP for the full year — a 1st since 1946.
  • GDP: That’s the total value of all goods and services produced by a country over a period of time (usually a year).
  • $27 trillion: That’s America’s national debt. It’s ~10X the size of every African country’s GDP combined and it’s $82K per American.

One shrinks, one explodes… The US GDP shrank at a record rate last quarter as consumer spending and manufacturing declined. Instead of that $5 Starbucks latte, you made WFH iced coffee. Meanwhile, debt ballooned:

  • Government spending spiked an extra $3T this year on corona-related rescue programs. Think: $1.2K stimulus checks, enhanced unemployment, and loans to businesses.
  • But government revenues fell 10% this spring compared to 2019. As corporate profits disappeared and millions lost their jobs, way less payroll and income tax $$$ flowed to the government.
  • More gov’t spending + less gov’t income = bigger deficit: The federal budget deficit is expected to hit $3.3T this year, more than triple 2019’s deficit and the biggest mismatch in income & spending ever.

THE TAKEAWAY

Tomorrow’s generations will have to repay today’s debts… The bigger the debt, the more the US has to pay back — with interest. Right now, the US (counterintuitively) enjoys record low interest on government debt despite the massive IOU. But in the long term, higher interest rates on debt could force the US government to cut spending on services like healthcare, education, and defense — and/or raise taxes. Big spending is necessary right now to prop up the economy, but it’s trouble for future generations.