US deficit racks up record deficit with 4 months still to go (copy)

In this December 2019 photo, mist rolls over the U.S. Capitol dome on Capitol Hill in Washington. The federal government recorded a budget deficit of $1.88 trillion for the first eight months of 2020, larger than any annual shortfalls in U.S. history.

The primary election is less than six weeks away, but voters might have trouble learning about candidates in what has been a delayed and disjointed campaign season.

In Kansas, the race for the 2nd District House seat is no exception. Surely, voters in the Republican primary are waiting to learn more about the positions of incumbent Steve Watkins and Jake LaTurner, the state treasurer who emerged as a challenger.

LaTurner, however, stakes out one position that deserves attention. He wants Congress to do something about a national debt that exceeds $25 trillion, accounting for $207,000 per American taxpayer.

In an era when political debate is limited to analysis of how many people filled an arena, he identifies a complex subject with far-reaching implications. Both parties share blame in allowing government borrowing to spiral to this level.

“The Democrats spent like drunken sailors when they were in power and Republicans have spent like drunken sailors when Republicans have been in power,” he said in an interview.

The government is running trillion-dollar budget deficits right now in an attempt to counter the economic headwinds from the coronavirus shutdowns. Even though these deficits fuel the debt, this level of red ink is appropriate and should continue for the short-term.

The problem is that the government registered significant deficits at a time of economic growth and expansion. Long term, this limits the ability to engage in expansionary policies and effective counter-measures during a crisis.

It also raises the potential of increasing the percentage of debt to the gross domestic product, which is a better indicator of long-term risk. If economic activity contracts significantly at a time when debt levels are high, this increases borrowing costs and crowds out spending for essential government services. It can allow bondholders to start making decisions that should be in the political sphere.

The Federal Reserve put U.S. debt-to-GDP at 106% in the fourth quarter, meaning it would take more than a year’s worth of all economic output to pay it down. Ten years ago, it was 84%.

By comparison, Greece carries less overall debt than the United States but has a much smaller economy. Its debt-to-GDP, currently at 180%, forced difficult cutbacks during the euro crisis.

No such crisis exists right now in the Unites States. Even amid a recession, it’s never a good idea to bet against the U.S. economy and its ability to bounce back.

But it’s also not a good idea to assume that unsustainable deficit spending never comes with a heavy price in terms of standards of living.

Eventually, the economy starts to grow again. When that happens, it’s a good idea to take up LaTurner’s suggestion to start talking about the debt.