The world feels overwhelming in the age of COVID-19. As a pandemic spreads with ease across states and borders, communities are locking themselves indoors and waiting for a vaccine. The toll of this virus on economies and businesses is immeasurable at this point.
What really gives us a good indication of what is to come is the debt increase. Debt is ballooning out of control for individuals and governments. No one can say for sure what will be in store for us months or years from now, but the general consensus is that things are bad, and they will probably be worse than we realize when the damage is calculated.
Debt in the United States
Consider this: In the United States, the national deficit rose from just under a trillion in September 2019 to a projected $3.7 trillion. That number is 17.9% of what the projected GDP will be. That is a number we did not hit even at the peak of the Great Recession, and some believe this number is low. For comparison, this number is usually more like 3% in a normal year.
This federal deficit is an accumulation of everything that the government owes, including years’ past. It is truly shocking to watch it more than triple itself in the course of a year, and with people and businesses desperate for assistance just to stay afloat, it is not likely to slow down.
The public debt in the United States has surged right along with the federal deficit. This is the personal debt that U.S. citizens have. It was over $16 trillion when it was tracked last year and has expanded to over $26 trillion in August 2020. As people continue to need assistance from a lack of job opportunities, the debt is sure to keep its pace.
It does not help that the national deficit was already at historic proportions before the pandemic. The tax cut in 2017 kickstarted the large deficit, and the pandemic has simply piled on top of it. With Congress having little choice but to act and send money to its citizens, the projections will likely be much lower than the actual number.
Deficit Across the Globe
This pandemic is global, and its economic woes are being reverberated just as easily as the virus itself. Things really went into gear the minute the virus started developing in other countries outside of China. This is coming on the heels of the highest record debt-to-GDP ever recorded at the end of 2019.
The expectation at the end of that year was that the global debt would continue to rise, but they did not understand by how much that would be. In 2019, the figure was about $250 trillion. More than $10 trillion has been added since that time and the projections are going up, not down. It’s thought that this year’s global debt will grow by 19%.
Governments and individuals are obviously not the only ones suffering economically at this time. Businesses are having difficulty seeing their way through the storm. Without a reliable income from consumers, shopping is not as frivolous as it was a year ago. But even worse, many businesses are unable to even open their doors as people figure out the safest way to reintegrate places like restaurants and gyms.
Corporations borrowed nearly $10 trillion in 2019, which was already quite high. There may be a trillion more by the year’s end. The borrowing has slowed down from when the pandemic started as businesses start to get their footing in this new normal, but some businesses did not live through the past few months to tell the tale.
The most difficult part for everyone involved is the lack of clarity. With no vaccine available and the rate of transmission continuing to increase, no one knows what cash they can expect to have on hand for simple objectives, like paying rent or getting groceries.
Businesses are stalled because some can’t reopen, and no one can expect a stable customer base. Governments have to either dig in their heels and shell out money they don’t have or watch the economy wither and die.
What does it all mean?
These are unprecedented times, so what does all this debt and turmoil add up to? We have never actually been in this place before for as far back as we’ve been keeping records, but it is clear that this is not sustainable. While an immediate impact is not being felt from borrowing, there is much debate among economists about what this will mean in the end.
For government borrowing, interest rates are low now, but it’s hard to say what will happen in the future. The hope is that this is a temporary measure, and once the virus goes away, things will explode into action and the debt will take care of itself. As more time passes, though, this seems highly unlikely.
And if changes don’t happen, the government will seek to tax its citizens as a way out. When U.S. citizens are suffering from an average debt of over $50,000 per person, this seems like an insurmountable burden.
There need to be better measures taken for both governments and individuals to control their debt or the consequences will be hard to manage. Having taxation piled onto existing debt to then create more debt seems like a sure recipe for disaster.
And the real economic pain and suffering won’t be experienced for several years down the road. As the world eventually bounces back from the virus, it will have to take care of the monkey on its back that is the global debt. Taxation will increase, jobs will decrease, and most likely the little guy will be left holding the ball.
No one can say for sure what the future holds. In the world of economics, the last six months has seen records being broken constantly, and not in a positive way. What remains clear is this: the actions we take today on debt will either sink us or save us in the long-term.