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Does US Stare Into Fiscal Abyss? 8 Pointers

Eight key points explaining why the U.S. fiscal stimulus package could drive the country into bankruptcy.

March 25, 2020

Eight key points explaining why the U.S. fiscal stimulus package could drive the country into bankruptcy.

In his new feature analysis on The Globalist, titled “The Sad State of US and Global Economic Affairs,” Richard Phillips offers a sobering economic analysis for what´s ahead for the U.S. economy.

His view is perhaps slightly more charitable than that offered by Martin Hutchinson. In “Boomer-Dämmerung: 401(K) and Bust,” he argues that the U.S. Baby Boomers´ strategy of relying on the stock market to fund their retirement has gone completely.

The following key economic numbers, all drawn from the article by Richard Phillips warrant special attention:

1. Prior to the onset of the coronavirus crisis, the US was already expected to run a trillion-dollar deficit in the current fiscal year.

2. On top of that the US federal government is planning to layer a fiscal stimulus of around $2 trillion — with even more debt to be added behind that.

3. This means the US budget deficit is likely to hit $3 trillion this year.

4. The $3 trillion deficit number for 2020 doesn’t take into account the loss of tax revenues that are due to the decline in US business activity and employment.

5. Nor does the $3 trillion deficit number take into account higher levels of spending on social welfare programs that are part of existing programs.

6. It is therefore safe to assume that the US federal budget deficit in the current fiscal year will zoom past the $4 trillion mark – and approach $5 trillion before it’s all over.

7. The US GDP in 2019 had been expected to come in at $21.4 trillion. Assuming there is a 15% decline in 2020 due to coronavirus, GDP will come in at around $18 trillion.

8. That would put the projected US budget deficit at around 28% of GDP!

Takeaways

The US budget deficit could reach 28% of GDP in 2020!