Covid 19 Drags the US Economy back to the Drastic Levels in Post WWII

Covid 19 Drags the US Economy back to the Drastic Levels in Post WWII More than 2$ trillion has been added by the US government to the federal ledger to fight the corona virus, the Congressional Budget Office said. Making the federal budget deficit expected to hit 3.3$ trillion, exceeding the annual gross domestic next year — a milestone that would put the U.S. where it was in the aftermath of World War II, when accumulated debt exceeded the size of the economy.   The US strategy against the emerging virus started with the economy shut down in the spring in a failed national attempt to defeat the pandemic. That shutdown led lawmakers and President Donald Trump to pump money into business subsidies, larger unemployment benefits, $1,200 direct payments and other stimulus steps that have helped the economy in the short term. This terrifying figure released Wednesday is more than triple the 2019 shortfall and more than double the levels experienced after the market meltdown and Great Recession of 2008-09. Government spending, fueled by four coronavirus response measures, would register at $6.6 trillion, that is $2 trillion-plus more than 2019.  

A Quarrel in the White House

While the talk of a fifth virus relief bill is rising in the White House; rises along the Republicans’ skepticism over the huge costs put so far in this battle, as the democratic-controlled house passed a 3.5$ trillion measure in May to battle the pandemic, House speaker Nancy Pelosi speaks of an attempt to cut that figure to 2.2$ trillion, Among Republicans, there seems to be less ardor for a deal — at least at what they see as unfavorable terms. GOP leaders had been pressing for a package in the $1 trillion range, but party talks during August have focused on a smaller package. This comes while cases of corona virus are still escalating in the States, highlighting the urgent need for a fifth virus rescue package that would include money to reopen schools, patch state budgets and continue enhanced jobless benefits that have kept families afloat.

Same Effects, Different Wars!

As measured by the size of the economy; this enormous deficit is bringing the federal debt near levels not experienced since the end of World War II, when borrowing to finance the war effort caused a significant spike. However; those levels quickly receded during the postwar boom — something that doesn’t seem very likely to happen now, since federal spending is now dominated by retirement programs like Medicare and Social Security, whose costs increase automatically with inflation and the ongoing retirement of the Baby Boom generation. The Federal Reserve has stepped in to keep credit markets stable and interest rates low for years as debt levels have risen. If interest rates rise too high, servicing the debt will put significant strain on the budget. By year’s end, the publicly held national debt will total 98% of the U.S. gross domestic product, the total output of goods and services. That compares with 79% of GDP at the end of 2019 and 35% back in 2007. The CBO projected that the debt would exceed 100% of GDP in 2021 and set a new record high of 107% in 2021. Brian Riedl, a senior fellow at the conservative Manhatten Institute commented: “At a certain point, Washington’s insatiable borrowing needs will crowd out other investments and harm growth, Washington should help end the pandemic and rescue the economy, yet must also address these unsustainable long-term deficits.”   You might also be interested in:

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