Don't be afraid of US deficits

On Sept 8 last year, the US national debt crossed US$20 trillion (S$26.5 trillion). It now stands at US$20.7 trillion or about 105 per cent of GDP, the highest level since World War II. Projections by the US Congressional Budget Office (CBO) suggest that the debt is not only set to grow from here, but to take off like a rocket, reaching 150 per cent of GDP by 2047 if current laws remain the same.

The Trump administration does not seem to care. In December, it passed a US$1.5 trillion package of tax cuts. Recently, it proposed a US$4.4 trillion Budget. The US federal deficit is expected to hit 4.2 per cent of GDP this year and 4.7 per cent next year, compared with an average of 2.8 per cent of GDP between 1967 and 2016. These deficits will add to the debt, which is an accumulation of deficits.

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A version of this article appeared in the print edition of The Straits Times on March 02, 2018, with the headline 'Don't be afraid of US deficits'. Print Edition | Subscribe