Coronavirus spending, shrinking GDP and tax-revenue decline push government toward milestone
WASHINGTON—U.S. government debt will exceed the size of the economy in the government’s 2021 fiscal year, a milestone not hit since World War II that has been brought into reach by a giant fiscal response to the coronavirus pandemic.
The Congressional Budget Office said Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output, in the fiscal year that begins on Oct. 1. That would put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece.
This year the ratio is expected to be 98%, also the highest since World War II.
The surge in borrowing so far isn’t creating angst among investors or hampering the U.S.’s ability to borrow more. Investors have gobbled up U.S. Treasury assets, drawn to their relative safety. Moreover, interest rates are expected to remain low, suggesting the government still has plenty of room to borrow.
The yield on the benchmark 10-year U.S. Treasury fell Wednesday to 0.643%, from 0.672%, in line with a broader rally in financial markets. Bond yields fall as prices rise.
The U.S. passed the 100% debt-to-GDP mark, measured on a quarterly basis, in the April to June quarter, when government spending surged to combat the new coronavirus and tax revenue plunged. But this would be the first time in more than 70 years for it to do so for the federal government’s full fiscal year.
The last time the U.S. debt level exceeded economic output was in 1946, when it stood at 106% after years of financing military operations to help end World War II.