Washington's borrowing addiction is starting to cause real-world pain for borrowers and investors everywhere.
For years, budget hawks warned about the damaging effects of the mushrooming national debt, which now totals more than $33 trillion. But they had to speculate about how a debt crisis would materialize, because it was only theoretical.
The annual US budget deficit hit $2 trillion in fiscal 2023, which ended in September. That was a big jump from the $1.4 trillion deficit in 2022. In theory, the annual deficit should be shrinking, since massive amounts of Covid stimulus spending in 2020 and 2021 have wound down and the overall economy has been solid. Yet the trend is worsening, rather than improving, due largely to decades of fiscal negligence by both Democrats and Republicans.
Most economists don’t think higher rates caused by excessive federal borrowing are likely, on their own, to cause a recession. But they’re pushing up borrowing costs across the board, for businesses and consumers alike. Surging rates also make stocks less appealing, since the return on bonds goes higher, and bonds are an alternative to stocks. That is surely a factor in the 9% drop in the S&P 500 since July 31, when the S&P peaked for the year.
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