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Pandemic Adds $8 Trillion to Debt Avalanche

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Pandemic Adds $8 Trillion to Debt Avalanche

Detroit News June 11, 2020
EconomicsTaxBudget

The coronavirus has produced three crises: A health crisis, an economic crisis, and — as the price of addressing the first two — a federal debt crisis.

The four pandemic response bills enacted thus far will cost $2.4 trillion over the decade. Additionally, the Congressional Budget Office (CBO) projects that the deep recession will shave nearly $16 trillion off the projected GDP over the next decade — which will reduce federal tax revenues and raise unemployment and antipoverty costs by around $4 trillion. Finally, the interest on this new debt will cost $1.3 trillion over the decade, according to my calculations.

Overall, that is $8 trillion added to the national debt over the decade — on which taxpayers will have to pay the interest forever. At even a modest 3% interest rate, the pandemic debt will produce $240 billion in annual interest costs. That exceeds the annual cost of the 2017 tax cuts. It exceeds the proposed cost of “free” public college tuition, or student loan forgiveness. It would be enough money to drastically expand almost any key federal priority. Instead, taxpayers will spend that money paying interest to bondholders.

Thus far, much of the new borrowing has (in an indirect way) been financed by the Federal Reserve. However, the Fed has begun slowing down its debt purchases, and over time is expected to unwind its balance sheet, leaving nearly the full $8 trillion to be owed to banks, mutual funds, pension funds, investors, and foreign governments.

Continue reading the entire piece here at the Detroit News

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Brian M. Riedl is a senior fellow at the Manhattan Institute and author of the recent issue brief, Coronavirus Budget Projections: Escalating Deficits and Debt. Follow him on Twitter here.

Photo by MarioGuti/iStock

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