A nation’s debt is money it borrows and has to pay back by certain dates. A nation’s deficit is the difference between expenditures and revenue during a certain period of time and when expenditures exceed revenue (also called a “negative surplus”).

In January 2020, the Congressional Budget Office (CBO) projected the US federal debt would increase from $16.8 trillion (79% of GDP) to nearly $31.5 trillion by 2030 (98% of GDP)*. Those projections are now obsolete

The CBO now projects that US federal debt will increase to $20.5 trillion in 2020 (99% of GDP) to about $34 trillion in 2030 (124% of GDP).

In January 2020, the CBO projected that the federal budget deficit would total $1 trillion in 2020 and $1 trillion in 2021. Those projections are now obsolete.

The CBO now projects the budget deficit in 2020 will be $3.7 trillion, which is nearly 18% of GDP: the largest deficit since 1945 (21 percent).

The CBO projects that GDP will decline by 5.6% from October 1, 2019 to September 30, 2020. If that happens, this year's decline would be the largest since GDP fell by 11.6% in 1946.

A deep recession will further increase the size of the federal budget deficit since lower economic activity will reduce tax revenues and increase some federal expenditures, such as unemployment benefits.

Mortgage purchase applications, reflecting demand for new and existing homes, were 30% lower in April 2020 than they were a year earlier.

The US unemployment rate was 13.3% in May 2020, and the number of unemployed persons was 21 million.

Low-wage workers and low-income families have borne the brunt of the economic crisis.

Workers who are younger, female, have less education, and Hispanic have seen the largest job losses.

On the positive side, May’s unemployment figures were better than expected and employment rose
sharply in leisure and hospitality, construction, education and health services, and retail trade.

Bottom line: we’re in for a bumpy ride. Government services will take a big hit for the next few years.

Next: How to maintain a robust social safety net on a tight federal budget.

—

* These are all fiscal years, which run from October 1 of one calendar year to September 30 of the next year. GDP = real Gross Domestic Product, an inflation-adjusted measure of the value of all the final goods and services produced within a country's borders in a specific time period.

References:

“Bad Medicine? Federal Debt and Deficits after COVID-19” Kevin L. Kliesen/St. Louis Federal Reserve  May 26, 2020 

“Budgetary Effects of the 2020 Coronavirus Pandemic” Phillip L. Swagel/Congressional Budget Office  June 5, 2020  

“Debt vs. Deficit: What's the Difference?” by Greg McFarlane Investopedia. Updated May 8, 2020 

“Monthly Budget Review for May 2020”Congressional Budget Office. June 8, 2020 

“The Employment Situation – May 2020”, U.S. Bureau of Labor Statistics. Released June 5, 2020