By Dr. Edward Seiler, vice president, Economics and Research, Dworbell, Inc.
In this week’s and next week’s Economist’s Corner I examine debt. This week, we’ll discuss the federal debt held by the public, and next week, household debt. These are two related but very different topics.
The first slide I plan to present at NRMLA’s Eastern Regional Meeting next week graphs GDP growth. It shows that real growth was robust in 2018 (at 2.9 percent) and that we’ve started 2019 with a strong 3.2 percent annualized rate in the first quarter.
Many economists however are expecting the annual growth numbers to fall starting in 2020 and, according to the Congressional Budget Office’s forecasts, to remain at a relatively anemic 1.6 percent through 2029.
One of the drivers slowing GDP growth is the ballooning federal deficit. In 2017, the deficit was 3.5 percent of GDP, it grew to 3.9 percent in 2018 and is predicted to grow to 4.9 percent of GDP in 2019-2028. These imply that the debt held by the public will jump from $15.5 trillion to $29 trillion in 2028—an amount almost equal to the predicted GDP in 2028.
What does this mean for our heirs? If our federal deficit patterns do not change, by 2048 payments on the public debt could be larger than Social Security payments and federal spending could reach 29 percent of GDP (levels not seen since World War II).
Perhaps it is time to start to fix federal deficit while we have full employment and a strong economy.