COVID-19 sent tremors throughout the world, and the devastating economic effects are palpable. As we continue to find our way through the uncertainty, questions about the current state of the economy and future recovery continue to linger.
Read more below to see how North answered questions webinar attendees asked about current and future economic health, and what recovery might look like.
Q: Any concerns on how increased government debt will impact long-term economic health?
A: “Our normal budget for the year is around $5 trillion. Then COVID-19 hit, and we had to enact the CARES Act, which was $2 trillion. With that stimulus package, we had to surpass our budget by $2 trillion—a huge increase in the deficit for one year. And when we look at it in terms of the debt to GDP ratio, we now have $20 trillion in debt, so we're at 100% of debt to GDP—which is quite high.
What's going to happen for the next 10 years, according to the congressional budget offices, is that the debt to GDP ratio is going to keep climbing, from 100% over to 110%, and so forth, because there is no plan to cut the debt level. However, that doesn’t mean it’s a disaster—it’s more of a tradeoff.
We can sustain high debt levels virtually indefinitely. Because we are the world's largest economy, we have the world's reserve currency. Other countries have much higher debt levels than we do. For instance, Japan has more than twice as much debt to GDP as we do, but its growth rate is about zero. So it's a tradeoff. We keep piling on government debt, it’s going to slow the growth of our economy. Not necessarily a disaster, but surely not the right way to go.”
Q: What worries about the economy keep you up at night?
A: “Before this crisis came along, economists used to forecast. For instance, with GDP growth rates, we don't have the historical experience to look back on to help forecast, which is challenging.
Since a lot of our forecasts are built on historical models, we have to get a handle on what's happening now. The data is kind of showing what we thought would happen, but we don't have any previous experience to ride on. And because this change happened so rapidly, it’s been a real headache.”