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Once a G.O.P. Rallying Cry, Debt and Deficits Fall From the Party’s Platform

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Fiscal hawks are lamenting the transformation of the party that claimed to prize fiscal restraint and are warning of dire economic consequences.When Donald J. Trump ran for president in 2016, the official Republican platform called for imposing “firm caps on future debt” to “accelerate the repayment of the trillions we now owe.”When Mr. Trump sought a second term in 2020, the party’s platform pummeled Democrats for refusing to help Republicans rein in spending and proposed a constitutional requirement that the federal budget be balanced.Those ambitions were cast aside in the platform that the Republican Party unveiled this week ahead of its convention. Nowhere in the 16-page document do the words “debt” or “deficit” as they relate to the nation’s grim fiscal situation appear. The platform included only a glancing reference to slashing “wasteful” spending, a perennial Republican talking point.To budget hawks who have spent years warning that the United States is spending more than it can afford, the omissions signaled the completion of a Republican transformation from a party that once espoused fiscal restraint to one that is beholden to the ideology of Mr. Trump, who once billed himself the “king of debt.”“I am really shocked that the party that I grew up with is now a party that doesn’t think that debt and deficits matter,” said G. William Hoagland, the former top budget expert for Senate Republicans. “We’ve got a deficit deficiency syndrome going on in our party.”The U.S. national debt is approaching $35 trillion and is on pace to top $56 trillion over the next decade, according to the Congressional Budget Office. At that point, the United States would be spending about as much on interest payments to its lenders — $1.7 trillion — as it does on Medicare.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Get Ready for the Debate Like an Economics Pro

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    What you need to know about the economy before Thursday’s showdown between President Biden and Donald J. Trump.President Biden.Doug Mills/The New York TimesFormer President Donald J. Trump.Haiyun Jiang for The New York TimesMany of the issues likely to dominate Thursday’s televised debate between President Biden and former President Donald J. Trump boil down to economics.Inflation, immigration, government taxing and spending, interest rates, and trade relationships could all take center stage — and both candidates could make sweeping claims about them, as they regularly do at campaign events and other public appearances.Given that, it could be handy to go into the event with an understanding of where the economic data stand now and what the latest research says. Below is a rundown of some of today’s hot-button topics and the context you need to follow along like a pro.Inflation has been high, but it’s slowing.Inflation jumped during the pandemic and its aftermath for a few reasons. The government had pumped more than $5 trillion into the economy in response to Covid, first under Mr. Trump and then under Mr. Biden.As families received stimulus checks and built up savings amid pandemic lockdowns, they began to spend their money on goods like cars and home gym equipment. That burst of demand for physical products collided with factory shutdowns around the world and snarls in shipping routes.Shortages for everything from furniture parts and bicycles to computer chips for cars began to crop up, and prices started to jump in 2021 as a lot of money chased too few goods.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    U.S. Debt on Pace to Top $56 Trillion Over Next 10 Years

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    Congressional Budget Office projections released on Tuesday show a grim fiscal backdrop ahead of tax and debt limit fights.The United States is on a pace to add trillions of dollars to its national debt over the next decade, borrowing money more quickly than previously expected, at a time when big legislative fights loom over taxes and spending.The Congressional Budget Office said on Tuesday that the U.S. national debt is poised to top $56 trillion by 2034, as rising spending and interest expenses outpace tax revenues. The mounting costs of Social Security and Medicare continue to weigh on the nation’s finances, along with rising interest rates, which have made it more costly for the federal government to borrow huge sums of money.As a result, the United States is expected to continue running large budget deficits, which are the gap between what America spends and what it receives through taxes and other revenue. The budget deficit in 2024 is projected to be $1.9 trillion, up from a forecast earlier this year of $1.6 trillion. Over the next 10 years, the annual deficit is projected to swell to $2.9 trillion. As a share of the economy, debt held by the public in 2034 will be 122 percent of gross domestic product, up from 99 percent in 2024.The new projections come as lawmakers are gearing up for a big tax and spending battle. Most of the 2017 Trump tax cuts will expire in 2025, forcing lawmakers to decide whether to renew them and, if so, how to pay for them. The United States will also again have to deal with a statutory cap on how much it can borrow. Congress agreed last year to suspend the debt limit and allow the federal government to keep borrowing until next January.Those fights over tax and spending will be taking place at a time when the country’s fiscal backdrop is increasingly grim. An aging population continues to weigh on America’s old-age and retirement programs, which are facing long-term shortfalls that could result in reduced retirement and medical benefits.Both Democrats and Republicans expressed concern about the national debt as inflation and interest rates soared over the last few years, but spending has been difficult to corral. The C.B.O. report assumes that the 2017 tax cuts are not extended, but that is highly unlikely. President Biden has said he will extend some of the tax cuts, including those for low- and middle-income earners, and former President Donald J. Trump has said he will extend all of them if he wins in November. Fully extending the tax cuts could cost around about $5 trillion over 10 years.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Wall Street’s Bond ‘Vigilantes’ Are Back

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    The financial world has been debating if market appetite for buying U.S. debt is near a limit. The ramifications for funding government priorities are immense.Typically, the esoteric inner workings of finance and the very public stakes of government spending are viewed as separate spheres.And bond trading is ordinarily a tidy arena driven by mechanical bets about where the economy and interest rates will be months or years from now.But those separations and that sense of order changed this year as a gargantuan, chaotic battle was waged by traders in the nearly $27 trillion Treasury bond market — the place where the U.S. government goes to borrow.In the summer and fall, many investors worried that federal deficits were rising so rapidly that the government would flood the market with Treasury debt that would be met with meager demand. They believed that deficits were a key source of inflation that would erode future returns on any U.S. bonds they bought.So they insisted that if they were to keep buying Treasury bonds, they would need to be compensated with an expensive premium, in the form of a much higher interest rate paid to them.In market parlance, they were acting as bond vigilantes. That vigilante mindset fueled a “buyers’ strike” in which many traders sold off Treasuries or held back from buying more.The basic math of bonds is that, generally, when there are fewer buyers of bonds, the rate, or yield, on that debt rises and the value of the bonds falls. The yield on the 10-year Treasury note — the benchmark interest rate the government pays — went from just above 3 percent in March to 5 percent in October. (In a market this large, that amounted to trillions of dollars in losses for the large crop of investors who bet on lower bond yields earlier this year.)Since then, momentum has shifted to a remarkable degree. Several analysts say some of the frenzy reflected mistimed and mispriced bets regarding recession and future Federal Reserve policy more than fiscal policy concerns. And as inflation retreats and the Fed eventually ratchets down interest rates, they expect bond yields to continue to ease.But even if the sell-off frenzy has abated, the issues that ignited it have not gone away. And that has intensified debates over what the government can afford to do down the road.Federal debt compared with the size of the U.S. economy neared peak levels during the pandemicFederal debt held by the public — the amount of interest-generating U.S. Treasury securities held by bondholders — relative to gross domestic product

    Note: Gross federal debt held by the public is the sum of debt held by all entities outside the federal government (individuals, businesses, banks, insurance companies, state governments, pension and mutual funds, foreign governments and more.) It also includes debt owned by the Federal Reserve.Source: Federal Reserve Bank of St. LouisBy The New York TimesUnder current law, growing budget deficits increase the amount of debt the federal government must issue, and higher interest rates mean payments to bondholders will make up more of the federal budget. Interest paid to Treasury bondholders is now the government’s third-largest expenditure, after Medicare and Social Security.Powerful voices in finance and politics in New York, Washington and throughout the world are warning that the interest payments will crowd out other federal spending — in the realm of national security, government agencies, foreign aid, increased support for child care, climate change adaptation and more.“Do I think it really complicates fiscal policy in the coming five years, 10 years? Absolutely,” said the chief investment officer for Franklin Templeton Fixed Income, Sonal Desai, a portfolio manager who has bet that government bond yields will rise because of growing debt payments. “The math doesn’t add up on either side,” she added, “and the reality is neither the right or the left is willing to take sensible steps to try and bring that fiscal deficit down.”Fitch, one of the three major agencies that evaluate bond quality downgraded the credit rating on U.S. debt in August, citing an “erosion of governance” that has “manifested in repeated debt limit standoffs and last-minute resolutions.”Yet others are more sanguine. They do not think the U.S. government is at risk of default, because its debt payments are made in dollars that the government can create on demand. And they are generally less certain that fiscal deficits played the leading role in feeding inflation compared with the shocks from the pandemic.Joseph Quinlan, head of market strategy for Merrill and Bank of America Private Bank, said in an interview that the U.S. federal debt “remains manageable” and that “fears are overdone at this juncture.”Samuel Rines, an economist and the managing director at Corbu, a market research firm, was more blunt — laconically dismissing worries that a bond vigilante response to debt levels could become such a financial strain on consumers and companies that it sinks markets and, in turn, the economy.“If you want to make money, yawn,” he said. “If you want to lose money, panic.”Interest payments for Treasuries have increased rapidlyFederal spending on interest payments to holders of Treasuries

    Note: Data is not adjusted for inflation.Source: U.S. Bureau of Economic AnalysisBy The New York TimesThe debate over public debt is as fierce as ever. And it echoes, in some ways, an earlier time — when the term “bond vigilantes” first emerged.In 1983, a rising Yale-trained economist named Ed Yardeni published a letter titled “Bond Investors Are the Economy’s Bond Vigilantes,” coining the phrase. He declared, to great applause on Wall Street, that “if the fiscal and monetary authorities won’t regulate the economy, the bond investors will” — by viciously selling off U.S. bonds, sending a message to stop spending at its heightened levels.On the fiscal side, Washington reined in spending on major social programs. (A bipartisan deal had actually been reached shortly before Mr. Yardeni’s letter.) On the monetary side, the Federal Reserve began a new series of interest rate increases to keep inflation at bay.The Treasury bond sell-off continued into 1984, but by the mid-1980s, bond yields had come down substantially. Inflation, while mild compared with the 1970s, averaged about 4 percent in the following years, a level not tolerable by contemporary standards. Yet interest payments on government debt peaked in 1991 as a share of the U.S. economy and then declined for several years.That sequence of events may be an imperfect guide to the Treasury bond market of the 2020s.This time around, the Peterson Foundation, a group that pushes for tighter fiscal policy, has joined with policy analysts, former public officials and current congressional leaders to push for a bipartisan fiscal commission aimed at imposing lower federal deficits. Many assert that “tough questions” and “hard choices” are ahead — including a need to slash the future benefits of some federal programs.But some economic experts say that even with a debt pile larger than in the past, federal borrowing rates are relatively tame, comparable with past periods.According to a recent report by J.P. Morgan Asset Management, benchmark bond yields will fall toward 3.4 percent in the coming years, while inflation will average 2.3 percent. Other analyses from major banks and research shops have offered similar forecasts.In that scenario, the “real” cost of federal borrowing, in inflation-adjusted terms — a measure many experts prefer — would probably be close to 1 percent, historically not a cause for concern.Adam Tooze, a professor and economic historian at Columbia University, argues that current interest rates are “not a cause for action of any type at all.”At 2 percent when adjusted for inflation, those rates are “quite a normal level,” he said on a recent podcast. “It is the level that was prevailing before 2008.”In the 1990s, when bond vigilantes helped prod Congress into running a balanced budget, real borrowing rates for the government were hovering higher than they are now, mostly around 3 percent. Government yields were historically low before recent riseThe inflation-adjusted rate for the 10-year Treasury note, a key market measure of “real” government borrowing cost, jumped well above its 2010s levels this year.

    Source: Federal Reserve Bank of ClevelandBy The New York TimesIn the broader context of the interest rate controversy, there is disagreement on whether to even characterize U.S. debt as primarily a burden.Stephanie Kelton, an economics professor at Stony Brook University, is a leading voice of modern monetary theory, which holds that inflation and the availability of resources (whether materials or labor) are the key limits to government spending, rather than traditional budget constraints.U.S. dollars issued through debt payments “exist in the form of interest-bearing dollars called Treasury securities,” said Dr. Kelton, a former chief economist for the U.S. Senate Budget Committee. She argues, “If you’re lucky enough to own some of them, congratulations, they’re part of your financial savings and wealth.”That framework has found some sympathetic ears on Wall Street, especially among those who think paying more interest on bonds to savers does not necessarily impede other government spending. While the total foreign holdings of Treasuries are roughly $7 trillion, most federal debt is held by U.S.-based institutions and investors or the government itself, meaning that the fruits of higher interest payments are often going directly into the portfolios of Americans.David Kotok, the chief investment officer at Cumberland Advisors since 1973, argued in an interview that with some structural changes to the economy — such as immigration reform to increase growth and the ranks of young people paying into the tax base — a debt load as high as $60 trillion or more in coming decades would “not only not be troubling but would encourage you to use more of the debt because you would say, ‘Gee, we have the room right now to finance mitigation of climate change rather than incur the expenses of disaster.’”Campbell Harvey, a finance professor at Duke University and a research associate with the National Bureau of Economic Research, said he thinks “there is a lot of misinformation” about current U.S. debt burdens but made clear he views them “as a big deal and a bad situation.”“The way I look at it, there are four ways out of this,” Mr. Harvey said in an interview. The first two — to substantially raise taxes or slash core social programs — are not “politically feasible,” he said. The third way is to inflate the U.S. currency until the debt obligations are worth less, which he called regressive because of its disproportionate impact on the poor. The most attractive way, he contends, is for the economy to grow near or above the 4 percent annual rate that the nation achieved for many years after World War II.Others think that even without such rapid growth, the Federal Reserve’s ability to coordinate demand for debt, and its attempts to orchestrate market stability, will play the more central role.“The system will not allow a situation where the United States cannot fund itself,” said Brent Johnson, a former banker at Credit Suisse who is now the chief executive of Santiago Capital, an investment firm.That confidence, to an extent, stems from the reality that the Fed and the U.S. Treasury remain linchpins of global financial power and have the mind-bending ability, between them, to both issue government debt and buy it.There are less extravagant tools, too. The Treasury can telegraph and rearrange the amount of debt that will be issued at Treasury bond auctions and determine the time scale of bond contracts based on investor appetite. The Fed can unilaterally change short-term borrowing rates, which in turn often influence long-term bond rates.“I think the fiscal sustainability discourse is generally quite dull and blind to how much the Fed shapes the outcome,” said Skanda Amarnath, a former analyst at the Federal Reserve Bank of New York and the executive director at Employ America, a group that tracks labor markets and Fed policy.For now, according to the Treasury Borrowing Advisory Committee, a leading group of Wall Street traders, auctions of U.S. debt “continue to be consistently oversubscribed” — a sign of steady structural demand for the dollar, which remains the world’s dominant currency.Adam Parker, the chief executive of Trivariate Research and a former director of quantitative research at Morgan Stanley, argues that concerns regarding an oversupply of Treasuries in the market are conceptually understandable but that they have proved unfounded in one cycle after another. Some think this time is different.“Maybe I’m just dismissive of it because I’ve heard the argument seven times in a row,” he said. More

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    Yellen May Face Questions in Morocco Over U.S. Dysfunction

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    Treasury Secretary Janet Yellen calls on Congress to authorize more economic support for Ukraine.As Treasury Secretary Janet L. Yellen arrives in Morocco this week to meet with her international counterparts, she will be representing a nation that has led the world’s post-pandemic economic recovery but is now struggling with potentially destabilizing political dysfunction.America came perilously close to defaulting on its debt over the summer and tiptoed toward a government shutdown last month as Republicans fought over the proper levels of federal spending and whether to bankroll more aid to Ukraine. Those events culminated in last week’s ouster of Representative Kevin McCarthy as House speaker, a development that is raising questions about whether the United States can actually govern itself, let alone lead the world.The political dynamic is expected to strain the credibility of the United States at the annual meetings of the International Monetary Fund and the World Bank, which begin on Monday in Marrakesh. Ms. Yellen is expected to press European governments to provide more funding for Ukraine and push creditors like China to relieve the debts of poor countries, including many African nations.The meetings are taking place amid heightened global uncertainty because of the weekend attacks that Hamas waged upon Israel, which threaten to spiral into a regional conflict. The possibility of a wider war could pose new economic challenges for policymakers by pushing oil prices higher, disrupting trade flows and inflaming tensions between other nations. As she traveled to Morocco, Ms. Yellen affirmed America’s support for Israel.“The United States stands with the people of Israel and condemns yesterday’s horrific attack against Israel by Hamas terrorists from Gaza,” Ms. Yellen said in a post on X, formerly Twitter, on Sunday. “Terrorism can never be justified and we support Israel’s right to defend itself and protect its citizens.”In an interview on Sunday during her flight to Marrakesh, Ms. Yellen acknowledged that other nations feel concerned and anxious about the political gridlock that has gripped the United States. However, she pointed out that other democracies face similar obstacles and that she believed America’s allies would continue to be supportive of the Biden administration’s efforts on issues such as protecting Ukraine and addressing climate change.“I think they have been delighted over the last two years to see the United States resume a very strong global leadership role and they want to work with us and they want us to be successful,” Ms. Yellen said.Yet America’s role as an economic bulwark against Russia’s war in Ukraine has been undercut by its own domestic politics, including Republican opposition to providing more economic support to Ukraine. The United States’s huge debt load and its inability to find a more sustainable fiscal path has also hurt its economic credibility.“The rest of the world can only look aghast with trepidation at our dysfunction — lurching from threats of default, to shutdowns, the adjournment of the House because there is no speaker,” said Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum, a think tank. “While foreign governments have always expected a degree of hurly-burly U.S. behavior, the current level of dysfunction will surely erode trust in U.S. leadership, stability and reliance on the dollar’s global role.”Eswar Prasad, the former head of the I.M.F.’s China division, added that instability in the U.S. economy could be problematic for some of the world’s most vulnerable economies that rely on America to be a source of stability.“For countries that are already struggling to prop up their economies and financial markets, the added uncertainty from the political drama in Washington is most unwelcome,” Mr. Prasad said.The gathering comes at a delicate moment for the global economy. While the world appears poised to avoid a recession and achieve a so-called soft landing, the fight against inflation remains a challenge and output remains tepid. Economic weakness in China and Russia’s ongoing war in Ukraine continue to be headwinds.The higher borrowing costs that central banks have deployed to tame inflation have also made it more difficult for countries to manage their debt loads.That is a problem across the globe, including in the United States, where the gross national debt stands just above $33 trillion. Foreign appetite for government bonds has been weak in recent months and concerns about the sustainability of America’s debt have become more prevalent. That is making it somewhat more challenging for the United States to counsel other nations on how they should manage their finances.The most challenging task for Ms. Yellen will be persuading other nations to continue to provide robust economic aid to Ukraine as its war with Russia drags on. European nations are coping with economic stagnation, and with Congress in disarray, it is unclear how the U.S. will continue to help Ukraine prop up its economy.Ms. Yellen said she would tell her counterparts that supporting Ukraine remains a top priority. Explaining that the Biden administration lacks good options for providing assistance on its own, she called on Congress to authorize additional funding.“Fundamentally we have to get Congress to approve this,” Ms. Yellen said. “There’s no gigantic set of resources that we don’t need Congress for.”Dismissing concerns that the U.S. cannot afford to support Ukraine, Ms. Yellen argued that the cost of letting the country fall to Russia would ultimately be higher.“If you think about what the national security implications are for us if we allow a democratic country in Europe to be overrun by Russia and what that’s going to mean in the future for our own national defense needs and those of our neighbors, we can’t not afford it,” Ms. Yellen said. More

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    Higher Rates Stoke a Growing Chorus of Deficit Concerns

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    A long period of higher interest rates would make the government’s large debt pile costly, a possibility that is fueling a conversation about debt sustainability.The U.S. government’s persistent budget deficit and growing debts were low on Wall Street’s list of worries when interest rates were at rock bottom for years. But borrowing costs have risen so sharply that it is causing many investors and economists to fret that the United States’ big debt pile could prove less sustainable.Federal Reserve officials have raised interest rates to about 5.3 percent since early 2022 in a bid to control inflation. Officials predicted at their meeting last month that interest rates could remain high for years to come, shaking expectations among investors who had bet on rates falling notably as soon as next year.The realization that the Fed could keep borrowing costs high for a long time has combined with a cocktail of other factors to send long-term interest rates soaring in financial markets. The rate on 10-year Treasury bonds has been climbing since July, and reached a nearly two-decade high this week. That matters because the 10-year Treasury is like the market’s backbone: It helps drive many other borrowing costs, from mortgages to corporate debt.The exact cause of the latest run-up in Treasury rates is hard to pinpoint. Many economists say a combination of drivers is probably helping to drive the pop — including strong growth, fewer foreign buyers of America’s debt, and concerns about debt sustainability in and of itself.What’s clear is that if rates remain elevated, the federal government will need to pay investors more interest in order to fund its borrowing. America’s gross national debt stands just above $33 trillion, more than the total annual output of the American economy. The debt is projected to keep growing both in dollar figures and as a share of the economy.While the climbing cost of holding so much debt is stoking conversations among economists and investors about the appropriate size of the government’s annual borrowing, there is no consensus in Washington for deficit reduction in the form of either higher taxes or big spending cuts.Still, the renewed concern is a stark reversal after years in which mainstream economists increasingly thought that the United States might have been too timid when it came to its debt: Years of low interest rates had convinced many that the government could borrow cheap money to pay for relief in times of economic trouble and investments in the future.The deficit as a share of the economy rose this year under President Biden even though the economy was growing.Pete Marovich for The New York Times“How big of a problem deficits are depends — and it depends very critically on interest rates,” said Jason Furman, an economist at Harvard and former economic official under the Obama administration. “That’s changed a lot,” so “your view on the deficit should change as well.”Mr. Furman had previously estimated that the growing cost of interest on federal debt would remain sustainable for some time, after factoring in inflation and economic growth. But now that rates have climbed so much, the calculus has shifted, he said.Since 2000, the United States has run an annual budget deficit, meaning it spends more than it receives in taxes and other revenue. It has made up the gap by borrowing money.Tax cuts, spending increases and emergency economic assistance approved by both Democratic and Republican presidents has helped fuel the rising deficits in recent years. So has the aging of America’s population, which has driven up the costs of Social Security and Medicare without corresponding increases in federal tax rates. The deficit as a share of the economy rose this year under President Biden even though the economy was growing, just as it did in the prepandemic years under President Donald J. Trump.Now, borrowing costs are poised to add to the gap.Higher interest rates are a leading cause, along with surprisingly weak tax collections, of what the Congressional Budget Office projects will be a doubling of the federal budget deficit over the last year. The deficit, when properly measured, grew from $1 trillion in the 2022 fiscal year to an estimated $2 trillion in the 2023 fiscal year, which ended last month.If borrowing costs climb further — or simply remain where they are for an extended period — the government will accumulate debt at a much faster rate than officials expected even a few months ago. A budget update released by Biden administration economists in July predicted annual average interest rates on 10-year Treasury bonds would not exceed 3.7 percent at any time over the next decade. Those rates are now hovering around 4.7 percent.That recent surge in longer-term bond yields ties back to a number of factors.While the Federal Reserve has been raising short-term interest rates for roughly 18 months, rates on longer-term bonds had remained fairly stable over the first half of this year. But investors have been slowly coming around to the possibility that the Fed will leave interest rates higher for longer — partly because growth has remained solid even in the face of elevated borrowing costs.At the same time, there have been fewer buyers for government bonds. The Fed has been shrinking its balance sheet of bonds as it reverses a pandemic-era stimulus policy, which means that it is no longer buying Treasuries — taking away a source of demand. And key foreign governments have also pulled back from bond purchases.“We’ve whittled down to a smaller universe of buyers,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.Some analysts have suggested that the pickup in bond yields could also tie back to concerns about debt sustainability. To pay higher interest costs, the government may need to issue even more debt, compounding the problem — and focusing attention on America’s mammoth debt pile, said Ajay Rajadhyaksha, global chairman of research at Barclays.“The problem is not just that number,” he said, referencing the increasing deficit. “The problem is that this economy is as good as it gets.”The economy has remained strong even though the Federal Reserve has raised borrowing costs. That has many expecting the Fed to leave rates higher for longer.Jim Wilson/The New York TimesThat, several economists have said, is the core of the issue: America is borrowing a lot even at a time when the unemployment rate is very low and growth is strong, so the economy does not need a lot of government help.“Right now we have an incredible amount of issuance at the same time as the Fed is messaging higher for longer,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, noting that typically higher issuance comes in periods of turmoil when central bank policy is more accommodative. “This is like a wartime budget deficit but without any help from the central bank. That is why this is so different.”White House officials say it is too early to know whether rising bond yields should spur Mr. Biden to add new deficit-reduction proposals to the $2.5 trillion in plans he included in this year’s budget. Those proposals consist largely of tax increases on corporations and high earners.“We might be having a different discussion about this a month from now,” said Jared Bernstein, the chair of the White House Council of Economic Advisers. “And when you’re writing budgets, you don’t go back and change your path lightly.”The Treasury Department has sold close to $16 trillion of debt for the year through September, up roughly 25 percent from the same period last year, according to data from the Securities Industry and Financial Markets Association. Much of that issuance replaced existing debt that was coming due, leaving a net debt issuance of around $1.7 trillion, more than at any other point over the past decade except for the pandemic-induced bond binge in 2020. The Treasury’s own advisory committee forecasts the size of government debt sales to rise another 23 percent in 2024.Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget and a longtime proponent of reducing deficits, said it was hard to tell what had caused rates to climb recently. Still, she said, the move serves as a “reminder.”“From a fiscal perspective, the story is very simple: If you borrow too much, you become increasingly vulnerable to higher interest rates,” she said.Santul Nerkar More

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    U.S. National Debt Tops $33 Trillion for First Time

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    The fiscal milestone comes as Congress is facing a new spending fight with a government shutdown looming.America’s gross national debt exceeded $33 trillion for the first time on Monday, providing a stark reminder of the country’s shaky fiscal trajectory at a moment when Washington faces the prospect of a government shutdown this month amid another fight over federal spending.The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. It came as Congress appeared to be faltering in its efforts to fund the government ahead of a Sept. 30 deadline. Unless Congress can pass a dozen appropriations bills or agree to a short-term extension of federal funding at existing levels, the United States will face its first government shutdown since 2019.Over the weekend, House Republicans considered a short-term proposal that would slash spending for most federal agencies and resurrect tough Trump-era border initiatives to extend funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support whatever compromise they reach among themselves.The debate over the debt has grown louder this year, punctuated by an extended standoff over raising the nation’s borrowing cap.That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programs keeps growing.But slowing the growth of the national debt continues to be daunting.Some federal spending programs that passed during the Biden administration are expected to be more costly than previously projected. The Inflation Reduction Act of 2022 was previously estimated to cost about $400 billion over a decade, but according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model it could cost more than $1 trillion thanks to strong demand for the law’s generous clean energy tax credits.Pandemic-era relief programs are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax benefit that was originally projected to cost about $55 billion, have so far cost the federal government $230 billion. The I.R.S. is freezing the program because of fears about fraud and abuse.At the same time, several of President Biden’s attempts to raise more revenue through tax changes have been met with resistance.In late 2022, the I.R.S. delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about $8 billion in additional tax revenue over a decade.Last month, the I.R.S. delayed by two years a new provision that will stop high earners from being able to funnel extra money into their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”Meanwhile, lobbyists are pressing for loopholes in new taxes that have been enacted. The 15 percent corporate alternative minimum tax was devised to ensure that rich companies could no longer get away with paying single-digit tax rates because of creative use of deductions. However, many of these companies have been pushing the Treasury Department, which is currently writing the rules that will govern the tax, to create exceptions to preserve their most prized deductions. That tax is different from the global minimum tax that most countries, except the United States, are working to adopt.The pushback against efforts to raise revenue and cut spending has heightened the sense of alarm among budget watchdog groups that fear that a fiscal crisis is approaching.“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”Republicans and Democrats in the House and the Senate continue to be divided on a path forward to avoid the near-term problem of a shutdown, and lawmakers have started pressing for leaders to begin focusing on a stopgap bill to keep the government operating past Sept. 30.But the red ink continues to mount.A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was $1.5 trillion for the first 11 months of the fiscal year, a 61 percent increase from the same period a year ago.In an interview with CNBC on Monday, Treasury Secretary Janet L. Yellen said she was comfortable with the nation’s fiscal course because interest costs as a share of the economy remained manageable. However, she suggested that it was important to be mindful of future spending.“The president has proposed a series of measures that would reduce our deficits over time while investing in the economy,” Ms. Yellen said, “and this is something we need to do going forward.” More

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    White House Hits Back on Fitch Credit Downgrade, Protecting Biden

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    The president’s team has mobilized to counter the downgrade of Treasury debt by the Fitch Ratings agency, rushing to defend the story of an improving economic outlook.When the Fitch Ratings agency announced this week that it was downgrading its long-term credit rating of the United States from AAA to AA+, Biden administration officials were ready — and angry.Administration officials had been lobbying Fitch against the downgrade, which bewildered many economists but became immediate fodder for congressional Republicans and nonpartisan budget hawks to criticize the nation’s current fiscal direction.When the ratings agency went through with the move anyway, President Biden’s team mobilized a rapid response, with economic heavyweights inside and outside the administration criticizing the timing and substance of the announcement.The swift pushback was an effort to keep the downgrade from tarnishing Mr. Biden’s economic record amid a run of good news in key measures of the health of the American economy. And its aggressiveness reflected the critical importance of an improving economic outlook to Mr. Biden’s re-election campaign.“What was important to the president was to point out not only was the Fitch decision arbitrary and outdated, but his administration has taken action to accomplish things that go in the exact opposite of the markdown,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in an interview, citing a bipartisan deal to raise the debt limit and modestly reduce federal spending.“One reason why we punched back hard is because Fitch completely ignored accomplishments under this president, both on fiscal policy and on economic growth,” he said.The White House got lucky in one respect. Coverage of the downgrade was immediately swamped by the third criminal indictment of former President Donald J. Trump.It was an extension of a trend that has both helped and hurt Mr. Biden so far this year: Over the past six months, according to a Stanford University database, television networks have focused as much on news about his predecessor as on news about Mr. Biden.Also helping Mr. Biden was that investors largely shrugged off the Fitch Ratings move. Researchers at Goldman Sachs wrote on Wednesday that “the downgrade should have little direct impact on financial markets.”The downgrade came just after 5 p.m. on Tuesday. Fitch released a statement that attributed the move to “the expected fiscal deterioration over the next three years, a high and growing general government debt burden and the erosion of governance” in the United States over the past two decades.Most notably, Fitch officials cited a series of high-stakes showdowns over raising the nation’s borrowing limit. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” they wrote.The agency also expressed concerns over the rising costs of Medicare and Social Security benefits as more Americans retire, which are predicted to be the largest drivers of rising federal debt in the decade to come. Fitch predicted that the nation was headed for a mild recession by the end of the year. It was the second credit downgrade in American history, both directly linked to debt limit fights.Moments after the release, Biden administration officials hit back.Janet L. Yellen, the Treasury secretary, said in a statement that she strongly disagreed with a ratings change that she called “arbitrary and based on outdated data.”Soon after, administration officials organized a call with reporters to criticize the move in more detail. They questioned why Fitch had not downgraded the rating when Mr. Trump was president, based on Fitch’s own ratings models, and why it had done so now, soon after a compromise with Republicans in Congress that had averted a fiscal crisis.They rejected the agency’s recession prediction, citing strong recent economic data. They said the president was committed to further spending cuts — along with tax increases on corporations and the wealthy — to further reduce budget deficits in the future.Officials also pointed reporters to a range of outside economists and analysts who criticized the decision.Republicans quickly used the downgrade to criticize Mr. Biden.“With annual deficits projected to double and interest costs expected to triple in just 10 years, our nation’s financial health is rapidly deteriorating and our debt trajectory is completely unsustainable,” said Representative Jodey C. Arrington of Texas, the chairman of the House Budget Committee. “This is a wake-up call to get our fiscal house in order before it’s too late.”Fiscal hawks have been warning for more than a decade that America’s debt could grow unsustainable. Those calls grew as lawmakers borrowed trillions to help people, businesses and governments endure the Covid-19 pandemic. The cost of federal borrowing rose sharply over the past year as the Federal Reserve raised interest rates to combat inflation. More

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    Fitch’s Debt Downgrade Is Unlikely to Deter Borrowing, Investors Say

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    Fitch’s credit-rating decision stemmed from concerns about America’s ability to govern itself, along with the nation’s growing debt load.The downgrade of the United States’ debt by a major ratings firm is a damning indictment of the country’s fractious politics and a blot on its financial record that is unlikely to be quickly erased. But many investors and analysts say it won’t affect the government’s ability to keep borrowing money.On Tuesday, Fitch Ratings lowered the credit rating of the United States one notch to AA+ from a pristine AAA. The firm, citing a “deterioration in governance” along with America’s mounting debt load, suggested that it could be a long time before that decision was reversed.“Our base case is that deficits will remain high and the debt burden will continue to rise,” said Richard Francis, co-head of the Americas sovereign group at Fitch and its primary analyst for the United States, in an interview on Wednesday. “I think it is unlikely that there will be any meaningful changes.”The move — like the drop to AA+ in 2011 by S&P Global, which has kept its U.S. rating there — followed partisan brinkmanship over America’s debt ceiling, which caps how much money the government can borrow. The United States came within days of defaulting on its debt this spring as Republican lawmakers refused to lift the cap unless President Biden made concessions on spending. The two sides ultimately reached an agreement on May 27, just days before the Treasury Department projected that the government could run out of cash.With both Fitch and S&P now carrying a lower assessment, the United States’ credit rating, at least for most investors, will no longer be considered among the top tier, which includes Germany, Australia and Singapore.While the move is something of a black eye, market watchers expect the practical impact to be small. Analysts at Wells Fargo noted that the early feedback from their clients was that their appetite to keep lending to the government wasn’t likely to change much.That’s because the U.S. Treasury market is the largest sovereign debt market in the world, underpinning borrowing costs across the globe, with Treasuries owned by investors of all stripes. The U.S. rating remains among the highest in the world, backed by a strong and diverse economy and aided by the central global role of the country’s currency.“This is largely a symbolic move,” said Peter Tchir, head of macro strategy at Academy Securities.Stock markets slumped on Wednesday, and the yield on Treasuries — which indicates how much investors are demanding to be paid in exchange for lending to the government — rose. But analysts suggested that had more to do with rising government borrowing forecasts, resulting in higher interest rates and pointing to increased costs for companies, too.Fitch downgraded America’s debt on the day that former President Donald J. Trump was indicted on charges related to his efforts to overturn the 2020 election, which culminated in an attack on the Capitol on Jan. 6, 2021. The attack showcased deep distrust in the government and the rule of law.Despite the suspension of the debt limit in June, future fiscal fights — including a possible government shutdown this fall — are looming. The lack of comity between the political parties means the cap is likely to remain a political tool, with no guarantee that a compromise will always be reached.That increased polarization was central to Fitch’s decision. Mr. Francis said intense partisanship had inhibited decisions on better budgeting and the debt ceiling, with both Democrats and Republicans unmovable on policies that could improve the country’s fiscal position. These include, he added, changes to taxes, military spending, and Social Security and Medicare, which are expected to face ballooning costs as more baby boomers retire.“There is no willingness on any side to really tackle the underlying challenges,” Mr. Francis said.The ratings agency also cited the Jan. 6 attack as a concern that fed into the downgrade.“There’s the debt ceiling standoff, there is this painful budgeting process, there is political polarization that is ongoing and probably deteriorating — and then there is the Jan. 6 insurrection, but that is one factor among many,” Mr. Francis said.The Federal Reserve’s rapid interest rate increases have compounded some of those factors by raising borrowing costs, forcing the government to borrow even more money to account for higher interest and other payments to bondholders.On Wednesday, the Treasury Department detailed its plans to borrow over $1 trillion for the third quarter, which runs from July through September. The estimate, announced on Monday, is $274 billion more than the Treasury had forecast in May. The United States current debt is $32.5 trillion.More borrowing means more debt for investors to digest. A larger supply of Treasuries while investor demand stays the same, or even shrinks, means higher borrowing costs for the government. The 10-year Treasury yield rose 0.07 percentage points on Wednesday to 4.09 percent, its highest level since November.Treasury Secretary Janet L. Yellen continued to criticize the Fitch decision on Wednesday, describing it as “puzzling” and “entirely unwarranted.”“Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we’ve seen over the past two and a half years,” Ms. Yellen said during an event in Virginia.Still, there does not seem to be any movement toward one solution that Fitch and many analysts have said would help the United States return to its higher rating: getting rid of the debt ceiling.Mr. Francis said it would “probably be helpful” to get rid of the debt limit if the United States ever wanted to regain a higher rating. Despite Mr. Biden’s desire to alter the process, there has been no indication that any changes are coming soon.Instead, Republicans and Democrats returned to the kind of partisan bickering that helped fuel the downgrade, with each side blaming the other for it.“The downgrade comes just months after Biden and congressional Democrats took the country to the brink of default and amid an increasingly unsteady economic path,” said Jake Schneider, director of rapid response for the Republican National Committee.The Democratic National Committee blamed the tax cuts and spending policies that were initiated by Republicans and Mr. Trump when he was president, saying the downgrade was “a direct result of Donald Trump and MAGA Republicans’ extreme and reckless agenda.” More