Experts warn of rocketing public debt after 1.9 trillion dollar stimulus package is approved by US Senate

March 21, 2021 | Updated 5:50 pm

Experts warn of rocketing public debt after 1.9 trillion dollar stimulus package is approved by US Senate Photo taken on March 11, 2021 shows the White House in Washington, D.C., the United States Source: Xinhua

WASHINGTON, March 20 (Xinhua) — The 1.9-trillion-US-dollar economic stimulus plan is viewed as the first legislative victory for Democratic President Joe Biden. Yet Republicans are blasting it as wasteful spending and economists warn America needs to be careful regarding its public debt level.

The legislation is “a huge win” for Biden because it provides money for COVID-19 relief, child care, school reopenings, Obamacare health subsidies, and state and local government activities, Brookings Institution Senior Fellow Darrell West told Xinhua.

It will be “a big boost” for the president’s other activities going forward, said West. “The fact that it’s passed as quickly as it has, and is largely what he (Biden) initially proposed, is a big deal,” said Christopher Galdieri, assistant professor at Saint Anselm College.

Medical workers wheel a patient into the emergency room at Maimonides Medical Center in the Brooklyn borough of New York, United States, March 8, 2021.
Source: Xinhua

A recent Pew poll found that 70 percent of American adults favor the bill. But Republicans and a number of media outlets said the bill is full of wasteful spending. The editorial board of the Wall Street Journal calculated that “COVID-related provisions tallies some 825 billion (US dollars)” of the bill.

The rest — more than one trillion US dollars — “is a combination of bailouts for Democratic constituencies, expansions of progressive programs, pork and unrelated policy changes,” the Journal wrote.

House Minority Whip Steve Scalise blasted the bill as “really devastating for America.”

Republican Strategist and TV personality Ford O’Connell told Xinhua that less than 10 percent of the bill goes to public health, with less than 1 percent for the vaccine. “What they passed is not a COVID relief bill, but the largest welfare expansion in over 50 years,” O’Connell said.

The Journal also noted that the US Congressional Budget Office said the bill “could increase the unemployment rate as well as decrease labor force participation,” reflecting an argument that contends some individuals would rather collect stimulus money than go back to work.

A child looks at a float during Macy’s Thanksgiving Day Parade in New York, the United States, Nov. 26, 2020.
Source: Xinhua

The large budget deficits the United States is running has put the US public debt on a dangerous path, Desmond Lachman, resident fellow at the American Enterprise Institute, told Xinhua.

However, there is an important factor that sets the United States apart from other highly indebted countries, like Greece, for example. It is that the US government borrows in U.S. dollars, the country’s own currency.

As such, there is little chance that the government will default on its debt, since the Federal Reserve can always create dollars to fund the government and pay off the US government’s creditors, Lachman said.

The real danger that excessively large budget deficits and rising public debt levels pose for the United States is that they could give rise to higher inflation and to a sharply weaker dollar, as the Fed prints money to finance the government, Lachman said.

Photo taken on Sept. 2, 2020 shows the U.S. Federal Reserve headquarters in Washington, D.C., the United States.
Source: Xinhua

America has immense fiscal capacity so it can ramp it up to a considerable degree more, but “let’s remember there is no free lunch. At some point of time, these debts will need to be paid,” said Sourabh Gupta, a senior fellow at the Washington-based Institute for China-America Studies, in a recent interview with Xinhua.

Gupta said that in 2005, the amount of the US public debt was about 35 percent of GDP, which is a very comfortable figure. Now after the latest COVID-19 package, it’s sure to be more than 105 percent of that, and the figure is going to be even higher as the Biden government plans to introduce an infrastructure bill.

“There is a general rule … that any debt above 90 percent of GDP tends to really weigh down a country’s future long-term growth prospects. The US has crossed that mark and crossed it significantly,” said Gupta.

“I would say America needs to be watchful on its public debt level … Whatever money is printed needs to be printed wisely. Not just because you can print it, but because it needs and it’s essential to print,” he said.