The deficit will reach 16% of GDP this year, as the CBO estimates. This is the worst deficit concerning the size of the economy since 1945.
The US 2020 fiscal deficit will be about US 3.3 trillion, or 16% of gross domestic product (GDP), as the Congressional Budget Office (CBO) estimates in a report that it published on September 2nd. This would represent the highest public debt concerning the gross domestic product (GDP), in percentage terms, since World War II ended.
In its report, the CBO states that the current economic and public health crisis has led the United States to record levels of public debt and a deficit of several trillions of US dollars.
According to the US Congressional Budget Office, the effects of the crisis, and the laws enacted to fight it will lead the debt and deficits to grow more. They consider that these will reach levels never seen before, both in US dollars and as a percentage of gross domestic product.
A graph shows that the deficit might decrease since 2021. It would decline in 2027, but it would grow again to reach -5.3% of GDP in 2030.
According to the graph, the US economy had been facing deficits since 1970. Until fiscal the year 2019 (from October 1st, 2018 to September 30th, 2019), the average deficit was 3.0% of GDP. The graph also registers the 2007-2009 recessions. However, the maximum deficit in the fiscal year 2009 was 9.8% of GDP, according to CBO’s report.
On the other hand, the fiscal deficit this year was 11 percentage points larger than the deficit in 2019. That increase comes mostly from the resources dedicated to responding to COVID-19, the checks distributed as relief, and other resources related to the CARES law, enacted on March 27th, 2020.
The CBO made deficit estimates in March that were aimed at reflecting the relief measures that the FED implemented. However, there was still no estimate of the record contraction that took place in the second quarter of 2020. They expected a record drop in GDP, but nothing like the one that happened.
Last July, there was a report on a 32.9% contraction in the US gross domestic product for the second quarter. It was the largest quarterly decline since the Bureau of Economic Analysis (BEA) began its records in 1947. Before the COVID-19 pandemic, the worst GDP decline occurred in the first quarter of 1958, when it fell by 10%.
The health crisis has affected the economy on a global scale. Last March 12th, all markets collapsed, including those of Bitcoin and other cryptocurrencies. In the case of the pioneering cryptocurrency, it has maintained a 45% return since the beginning of 2020, despite recent price fluctuations. It has also achieved a 117% recovery, compared to the drop occurring in mid-March. At the time of writing this article, Bitcoin is trading for USD 10,476, according to data from Messari.
By Alexander Salazar
