Why is the US Economic Recovery Plan Necessary?
Why is the US Economic Recovery Plan Necessary?

Why is the US Economic Recovery Plan Necessary?

New President Joe Biden signed a massive debt-funded stimulus package Thursday. This was the last step towards passing an extremely flawed law.

It may be tempting to hope that this will finally quench the left’s appetite for the great government. Ultimately, when the new spending bill is taken into account, the size and scope of the government will increase by more than 54% – from $ 4.5 trillion in 2019 to about $ 6.9 trillion this year.

DC has brought an additional $ 4.5 trillion to national debt in the last year alone. This brings the total debt level to $ 28 trillion, or roughly $ 225,000 per US household.

Why is the US Economic Recovery Plan Necessary?
Why is the US Economic Recovery Plan Necessary?

Unfortunately, it does not seem to be enough for the congressional leaders and the Biden administration to curb the spending spree. A planned infrastructure spending package can exceed $ 2 trillion and there is little appetite to pay for it.

There are many should avoid another inflated spending deal. The non-partisan Congress Budget Office released a report last week detailing one of the most important reasons: Our country’s financial situation is rapidly moving towards the regions.

While the numbers may seem impossibly large, the graphs below can help visualize the impending catastrophe.

Source: CBO

The federal government accumulated a debt during the Great Depression and ww2. When the war ended, federal spending adjusted from 41% of the economy in 1945 to 11.4% in 1948.

A combination of lower spending and rapid income increases from the post-war economic boom meant that national debt shrank significantly relative to the economy. Unfortunately, such a rapid debt reduction is almost impossible to repeat today.

Even the most optimistic growth predictions fall far short of those seen after World War II. More importantly, it will be extremely difficult to cut spending at a similar pace, as most of the federal spending goes to established aid programs such as Social Security and Medicare.

In addition, policies aimed at accelerating economic growth and limiting spending continue to be the best way to prevent national debt from reaching crisis rates.

Sources: CBO, Census Bureau, and Treasury Department

In 2020, the federal government spent almost twice as much as it took from taxes. The new legislative package means that this year’s deficit will likely be higher than last year. These very high deficits contribute to an even larger total debt.

Uncle Sam has benefited from low interest rates over the past few years and has reduced the cost of rising debt. However, we cannot assume that this will last forever. If you went to a bank for a major loan, you would expect it to ask some tough questions about your finances. The same is true for the global financial system we trust to buy our debt.

While short-term federal bonds are still considered a safe investment, markets are demanding much higher returns on long-term debt. Credit rating agencies have recently warned that our credit rating could be downgraded if steps are not taken to address excessive spending and debt.

They also warned us that interest rates will rise. This signals that our cheap credit days may end sooner than we would like. If that happens, America will pay a very high price.

Sourves: Congressional Budget Office

This “high price” is not figurative. A new report from the Congressional Budget Office shows that the cost of paying the national debt is poised to explode before the stimulus package passes.

Currently, debt rates are a burden the economy can handle. However, even a modest rate hike – coupled with Washington’s continued irresponsibility – will cause interest costs to increase more than five times over the next few decades.

This would be an anchor at the neck of the economy, making it impossible for future generations to experience and the growth and prosperity we naturally regard as impossible.

Sources: CBO, OMB and U.S. Census

In the not-too-distant past – especially in 2018 – public debt per capita was just under $ 50,000. Today it is about $ 67,000 for every American, including children.

It just gets worse from there. A baby born tomorrow is expected to owe more than $ 111,000 to his name by the age of 18, and approximately $ 192,000 at 30.

These numbers do not take into account the new incentive bill, a potential infrastructure package or extended benefit programs. Instead, the main reason debt spikes in the coming years is to allow unlimited growth of federal spending.

While some on the left blame the 2017 tax cuts for deficits, this chart makes it clear that an explosion in federal spending is to blame for our long-term fiscal deficit. Spending was already above the historical average in 2019 and will grow much faster than the economy from 2022. Meanwhile, income will soon return to normal levels.

Why do we expect such a rapid increase in federal spending? A handful of programs, notably Social Security, Medicare, and Medicaid, were established unsustainably. Reshaping these programs by balancing the needs of both retirees and future generations would be a tremendous breakthrough.

However, Congress constantly avoided the problem of unsustainable programs and even made things worse by expanding the benefits. The longer Washington waits to face this problem, the harder the remedies will have to be. Those in leadership positions have a responsibility to do what is right for current and future Americans, and if they don’t, the public should hold them accountable.