The U.S. economy is expected to contract by double digits as unemployment surges, while the federal deficit is seen exploding to $3.7 trillion in 2020, the Congressional Budget Office (CBO) said Friday.
U.S. GDP in the April-June period is forecast to decline by 12% while the jobless rate reaches 14% as a result of the widespread lockdowns to contain the coronavirus pandemic, the independent CBO said.
The deficit estimate is more than triple the CBO's prior forecast last month.
CBO warned that the "challenges in the economy and the labor market are expected to persist for some time."
That's more than double the deficit record set during President Barack Obama’s first year in office.
The CBO said lawmakers eventually will be forced to tackle the government’s chronic financial woes, if for no other reason than the looming insolvency of Social Security and Medicare.
The report is full of gloomy economic news, predicting a devastating hit to the economy this quarter at an annualized rate of decline of 40%.
Coronavirus-related federal debt and deficit figures are pointing to government red ink unparalleled since World War II.
Among the legacies of the pandemic, the report says, is a pile of trillions of dollars of debt, amassed by a political system that has proved incapable of taking even small steps to constrain this problem.
One lasting worry is the further shrinking of revenues that already were well below historic averages, even as the spending side of the federal ledger climbs due to the retirement costs of the baby boomers to Medicare and Social Security, record Pentagon spending and long-term COVID-19 response costs.
Even Washington’s few remaining spending hawks say the flood of red ink should not be a focus in the short term as the government takes unprecedented steps to respond to a shrinking economy, unemployment levels not seen since the Great Depression, and shutdown orders lasting well into next month or beyond.
But when policymakers inevitably are forced to take on deficits, virtually none of them will have any experience in successfully doing so. Congress has not passed a major attack on the deficit since the hard-won 1997 law that capped a decade’s worth of politically costly but ultimately effective reduction measures.
The era of successful action to tackle debt and deficits ended more than two decades ago. In the interim, a divisive brand of politics has taken hold, making the kind of painful sacrifices required to even dent the deficit virtually impossible to pull off.
What's more, no one has even seriously tried since a failed effort by former GOP Speaker John Boehner of Ohio and Obama almost a decade ago.
There’s no agreement on what levels of debt and deficits are sustainable. The government has run large deficits for well over a decade without the predicted increase in interest rates, economic stagnation, or a European-style fiscal crisis.