U.S. Debt to Exceed Size of Economy for 1st Time since WW2

(Edward Morgan) Driven by the multi-trillion-dollar emergency relief packages in response the coronavirus, the U.S. deficit is expected to be $3.7 trillion in 2020, according to the Congressional Budget Office.

That would cause the federal debt to exceed the size of the economy for the first time since World War II, the Washington Examiner reported.

Combined with the $2.7 trillion in relief legislation already signed into law, the unprecedented drop in economic activity due to the near-total lockdowns is expected to severely depress revenue collections.

Prior to the coronavirus pandemic, the CBO already had projected annual $1 trillion deficits into the future as the number of retirees grows and health-care costs rise.

Now, the CBO forecasts GDP to drop 12% in the second quarter, the equivalent of 40% on an annualized basis.

Unemployment, at 50-year lows just months ago, is expected to average 14% over the quarter.

The public debt will reach 101% of GDP by the end of the year, the CBO predicts.

The last time that happened — the only time in American history — in 1945, the year World War II ended, and 1946.

GDP in those years was 104% and 106%, respectively, due to wartime spending.

The Examiner said the actual percentag of GDP for 2020 is likely to be worse, the Examiner said.

That’s because the CBO does not account for future spending bills that Congress is likely to pass in response to the crisis.

The CBO also assumes a 75% drop in social distancing during the second half of the year. Some analysts believe that is optimistic.