As the lockdowns have crippled the economic growth and raised unemployment to an alarming level, governments around the world are giving stimulus packages to cope with the damages. The US has said that it will borrow a record loan of $3 trillion in the second quarter because coronavirus-related stimulus packages blew up the budget.
The sum is much higher than the previous loan set at the 2008 financial crisis. In 2019, for the whole year, the United States borrowed $1.23 trillion. Trump administration and Congress have approved coronavirus-relief in direct payments and health funding.
So far, the country’s total debt is around $25 trillion, financial experts said that the current packages account for almost 14% of the US economy. Adding to the cash crunch, the government has also delayed the tax payment deadline of April 15.
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For further assistance, talks are in progress; however, Republican politicians have asserted that such high spending on skyrocketing national debt is harmful. Since the US debt is seen as relatively low risk by investors around the world, it borrows by selling government bonds and enjoys low-interest rates.
Even before the coronavirus outbreak, the US debt was climbing at an alarming rate, and economists had warned that these are harmful to long-term growth as it spent more than it took in as revenue.
Last month, the US Congressional Budget Office projected that the budget deficit is expected to reach $3.7 trillion, and the national debt could soar to 100% of GDP in 2020. Jerome Powell, the chair of American national bank, said that he would have liked to see the books in order before the pandemic.
He added that spending is now necessary as the lockdowns have cost more than 30 million jobs as small and big businesses have shut down. The federal reserve bank has also booked $1 trillion in treasuries, apart from its relief efforts.
Foreign investors, including China, Japan, the UK, are the significant investors in US external debt. With increased tensions between China and the US have called for further scrutiny in the American debt position.
The Washington Post reported that members of the administration recently proposed canceling debt obligations to Beijing, to which Trump responded negatively and downplayed the idea.
