Saturday, September 12, 2020

Two Countries' Massive Debts

The US budget deficit has hit a record high of more than $3 trillion, driven by the government's massive spending on coronavirus relief. 

The federal government spent more than $6 trillion in the first 11 months of its financial year, including $2 trillion on coronavirus programmes, the Treasury Department said. 

The shortfall is more than double the previous full-year record, set in 2009. At the time, Washington was grappling with the aftermath of the 2008 housing financial crisis. 

Even before the pandemic, the US was on track to run a deficit of more than $1 trillion this year – large by historic standards. 

But the spending approved to try to cushion the financial impact of the virus has exploded those projections. The Congressional Budget Office this month predicted that the US was likely to run a full-year deficit of $3.3 trillion, more than triple the shortfall recorded last year. 

The federal government's financial year ends in September. And the agency said it expected total US debt to exceed $26 trillion. 

At one hearing in Washington in June, Jerome Powell (left), the head of the US central bank, told members of Congress that America's spending path was "unsustainable" – but said reducing the shortfall should not be a priority given the state of the economy. 

The UK too is in dire financial straits. 

UK government debt has already risen above £2 trillion for the first time amid heavy spending to support the economy amid the coronavirus pandemic. Spending on measures such as the furlough scheme means the debt figure now equals the value of everything the UK produces in a year. 

Total debt hit £2.004 trillion in July, £227.6 billion more than last year, said the Office for National Statistics. It is the first time debt has been above 100% of gross domestic product (GDP) since the 1960-61 financial year, the ONS said. 

Economists warned the situation would worsen before improving.

Of course, we can blame it all on Covid-19 – anyway, in the short-to-medium term, the economies of these two countries are expected to be in pretty bad shape.

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