US National Debt Surpasses $33 Trillion Amid Looming Government Shutdown
Sep 12, 2023
The US national debt hit a record high of $33 trillion this week, triggering defensive sentiments on Wall Street. The looming government shutdown, should it occur, threatens to exacerbate an economy already grappling with challenges such as:
High gas prices
Renewed student debt payments
Gary Schlossberg and Jennifer Timmerman of the Wells Fargo Investment Institute have noted multiple economic pressures, including the aforementioned, which are cumulatively increasing the risk of recession by year-end.
Repercussions of a Potential Shutdown
If a government shutdown does transpire, it would halt the majority of government agency functions and necessitate that all non-essential government personnel take unpaid leave. According to EY, approximately 800,000 non-emergency federal employees, each with an average salary of $95,000, will be affected. The longer the shutdown persists, the greater the economic damage. EY’s chief economist, Gregory Daco, and his team estimate that every week of government inactivity could dent the US economy by $6 billion, trimming GDP growth by 0.1 percentage points in the fourth quarter of 2023. Notably, there would also be a delay in economic data, complicating matters for economists and policymakers.
Past shutdowns ranged from a few days to over a month. However, the current polarization in Congress suggests that the upcoming one could last several weeks, posing further volatility and weakness in the stock market.
Political Tensions and Fiscal Responsibility
Fitch, the ratings agency, previously downgraded US sovereign debt from AAA to AA+ in August. The major reasons were escalating debt and political tensions. Nonetheless, the government’s response has been passive, even as the gross national debt surged by $1 trillion within the last quarter.
Both parties have been pointing fingers: Republicans argue that the federal spending programs, notably those promoted by the Biden administration, are too costly. In contrast, Democrats believe that the GOP-supported tax cuts have diminished revenue. With September 30 marking the end of the fiscal year, lawmakers are hard-pressed to finalize the 2024 budget by October 1 to prevent a shutdown. As of now, none of the 12 essential appropriation bills has received Congress’s approval, making it improbable for a plan to be sanctioned by the cutoff date.
Treasury Department data indicated that the national debt reached $33.04 trillion by Monday afternoon. This is a stark rise from the $907 billion four decades ago. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, voiced concerns about the US becoming desensitized to these colossal figures, emphasizing the inherent risks.
Recent Proposals and Projections
House Republicans have recently proposed a short-term plan to provisionally finance the government until October 31. This plan proposes an 8% spending reduction on federal agencies, exempting defense, veterans affairs, and disaster relief. Regardless, not everyone in the GOP is on board with this measure.
According to the crystal ball of the Congressional Budget Office, we’re looking at a possible doubling of our national debt in the upcoming 30 years. The thought of interest payments alone shooting up like a rocket from $475 billion in 2022 to an eye-watering $5.4 trillion by the year 2053 can give anyone a jolt. The top dog at the Peter G. Peterson Foundation, Michael Peterson to be exact, isn’t afraid to speak up about the dangerous path this escalating financial cycle has put us on. He warns us that if we don’t tread carefully, this fiscal pitfall could wreak havoc for generations to come.
Blame Game Continues
Political debates continue to intensify. The White House was swift to pin the blame on Republicans for the steep ascent in federal debt. Michael Kikukawa, White House assistant press secretary, remarked that the debt surge over the past two decades was majorly driven by the vast sums expended on Republican tax reductions favoring the affluent and significant corporations. He added that the GOP’s intentions to perpetuate President Trump’s tax cuts while abolishing President Biden’s corporate tax reforms were indicative of their fiscal priorities.
In contrast, the Republicans shift the blame onto the broad-scope federal programs kicked off under Biden’s reign. They argue these programs are ridiculously expensive and frankly, more than our nation’s wallet can bear.
In the face of skyrocketing national debt, the looming threat of a government shutdown, and escalating economic tensions, the US is at an urgent juncture. Now more than ever, the call for robust financial and political tactics rings loud and clear. We’ve hit a pivotal turning point as a nation.