The U.S. has run into recessions with a messy fiscal situation before, but never this bad.
That’s the warning from Apollo chief economist Torsten Slok, who wrote in his Daily Spark newsletter on Tuesday the country is approaching a potential downturn “with this little fiscal buffer” for the first time in modern history.
Gross national debt is currently festering at $39 trillion and growing at what the Peter G. Peterson Foundation calls a “staggering” pace of accumulation. Debt held by the public has already overtaken annual GDP—just the interest alone that we pay on our debt runs at $3 billion a day, exceeding annual federal spending on Medicare or Medicaid.That big, ugly, black hole of our debt is slowly sucking out the ability of the central bank to respond to recessions, Slok argues.
Why the national debt makes the U.S. less prepared for a recession
When the growth rate stalls, the government usually does two things in response: First, the Federal Reserve cuts interest rates, thereby lowering borrowing costs to incentivize businesses and households to take more risks and spend more. At the same time, the federal government starts ramping up its spending: They add stimulus like tax cuts or infrastructure spending to rev up the engine at the same time that unemployment claims spikes. The deficit surges, and the economy usually finds its footing.
