While lawmakers and economists debate whether the gargantuan stimulus package grinding through Congress will work, one thing is certain: It will create a hefty increase in the federal debt. And that will affect us all directly for years, as well as our children and possibly grandchildren. Even if it succeeds in producing enough jobs and consumer and business spending to end the recession, it could lead to a combination of higher taxes, higher interest rates and possibly reduced government services down the road.

The nonpartisan Congressional Budget Office said this year’s budget deficit would be a record $1.2 trillion — about two times that of the year before. This includes financial bailouts and rescue plans approved since last Oct. 1, the start of the government’s budget year, but not the big stimulus proposal now before Congress.

And that deficit is just for one year.

Once you carry over government’s outstanding deficits from prior years, the total national debt comes to just over $10.6 trillion right now. Every individual in the United States would have to chip in roughly $37,000 apiece to pay it off.

Total federal indebtedness has nearly doubled in just a decade.

The package of public-spending projects and tax cuts that passed the House last week would cost $819 billion over the next two years. The Senate is considering a somewhat different, $900 billion measure.

Without decisive action, President Barack Obama has said, “Trillion-dollar deficits will be a reality for years to come.”

If the stimulus package and government industry bailouts work as expected, the surge in federal spending and tax relief will be temporary. When the economy recovers, tax revenues will rise and government social-service spending should moderate. But even if annual deficits return to more normal ranges, the cost of the stimulus package and related measures will long be embedded in the national debt.

Not including new stimulus, the Treasury Department projected that interest payments on the federal debt alone would be about $450 billion this budget year. The stimulus package will add roughly $40 billion more a year.

With the national debt relentlessly rising, interest payments will become an ever-larger slice of the government’s total budget pie. Interest on the debt has already become the fourth largest federal spending item behind Medicare-Medicaid, Social Security and defense costs.

The U.S. debt now in the hands of foreign governments — primarily China, Japan, Britain and Arab oil-producing nations — is about a third of the total, roughly double that of a decade ago.

Any major flight from Treasuries or other dollar-denominated assets could further rock the global economy and force up U.S. interest rates.

It’s hard to believe that as recently as eight years ago there was a budget surplus projected to total $5.6 trillion over ten years. Both incoming President George W. Bush and predecessor Bill Clinton talked about using it to help retire the national debt by the end of the decade. In other words, by the end of this year.

Tags: crisis, economy, global, resseion, stimulus

posted on on Wednesday, February 4th, 2009 at 7:55 am
under news and Internet Info
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2 Responses to “Analysis: Economic stimulus package will increase federal debt”

1. Stimulus Package Says:
   February 12th, 2009 at 6:01 am

   Stimulus Package…

   Washington insider leaks what tax payers will receive from Obama\’s stimulus package!…

2. Milagros Cartlidge Says:
   November 28th, 2009 at 1:39 pm

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