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Between July and September, U.S. could run out of cash to pay its bills

STEVE INSKEEP, HOST:

There's this old saying that there are three kinds of lies - lies, damned lies and statistics. Possibly with this warning in mind, Congress staffs a nonpartisan budget office whose job is to come up with budget numbers that are credible. And the CBO has some thoughts about the federal debt and borrowing in years to come. First, this country is on track to borrow a lot more than it already has. And second, we're growing closer to default because House Republicans have so far declined to pay the bills. David Wessel joins us next. He directs the Hutchins Center at the Brookings Institution. Welcome back, sir.

DAVID WESSEL: Good morning.

INSKEEP: OK. So first, if present trends continue, if we keep taxing and spending at the amount that we are, how much is the country on track to borrow?

WESSEL: So the Congressional Budget Office says over the next decade, the government will spend $20 trillion more than it takes in in taxes. And the thing that's a little bit frightening is that that's 20% more borrowing than they predicted last May, when they did their last report. And there are two reasons for this. One is Congress passed a lot of big-ticket spending bills last year. And second, CBO expects the overall economy to do worse than it had anticipated and interest rates to be higher, and those interest rates are a big factor. The interest tab on the federal debt soars as the government borrows more and interest rates go up.

INSKEEP: I guess we should underline the danger here. We have found out in the last few years that the federal government can borrow a lot more than anybody maybe thought they could, without any particular damage to the economy, but there's some point at which it becomes hard to make the monthly payments. Is that the deal?

WESSEL: Yeah. The thing is, we don't know how much the government can borrow before it runs into trouble. The debt has risen from about 35% of the GDP, the overall size of the economy, which - before the global financial crisis. It was 80% of GDP before the COVID pandemic. And because of all the pandemic spending, it's about 100% of GDP today. And that's levels we haven't seen since World War II. Now, there are some people who predicted, at this level, we would surely have had a financial crisis or an economic calamity, but we haven't. The U.S. Treasury hasn't had any significant trouble borrowing that money. And interest rates on 10-year Treasury debt, though higher than they were a year ago, are still low by historical standards.

So there's no sign now that government borrowing is causing a problem. But CBO projects that we're on track to raise the federal debt to 195% of GDP over the next 30 years. That's really a lot. And although there's a lot of uncertainty about the numbers, the government clearly is on an unsustainable course. The debt can't grow faster than the economy forever. So at some point, Congress is going to have to do something about taxes and spending.

INSKEEP: Well, let's talk that through because we're in the middle of this debt ceiling debate once again, where House Republicans are saying they will not pay the country's bills unless they get a negotiation over spending. And there's a limited amount of time, according to the CBO. We've got a few months to straighten this out, or the United States is not going to be able to pay its bills. But in the meantime, this is what seems to be on the table. Republicans are saying, we want to drastically bring down the deficit, but also saying, we don't want to touch popular programs like Social Security and Medicare. Is it possible to do both of those things?

WESSEL: I don't think so, not without a lot of tax increases. What the CBO report says that outlays for Social Security and Medicare are going to grow a lot over the next decade because we have a lot more old people, and health care spending is rising rapidly. Everything else is going to be a smaller share of the budget. So it's really hard to reach budget nirvana without doing something on the tax or spending side on Social Security or Medicare.

INSKEEP: Budget nirvana - that's what you guys study over there at the Hutchins Center, is that it?

WESSEL: Absolutely. We're in favor of it.

INSKEEP: (Laughter) That's good. David, it's a pleasure talking with you. Thank you so much.

WESSEL: You're welcome.

INSKEEP: David Wessel at the Brookings Institution. Transcript provided by NPR, Copyright NPR.

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