The economic paralysis triggered by the coronavirus pandemic is forcing the U.S. Treasury to borrow far more than it ever has before—$2.99 trillion in the current quarter alone.
The amount is more than five times the government’s previous record borrowing for a quarter, $569 billion, set in the depths of the 2008 financial crisis. It also dwarfs the $1.28 trillion the government borrowed in the bond market for all of 2019.
The Treasury Department said the huge sum is needed to pay for nearly $3 trillion in rescue aid that the government has unleashed in programs to support tens of millions of jobless workers and shuttered businesses with direct payments and loans.
“Borrowing needs are skyrocketing as Treasury needs cash to fund stimulus measures and to compensate for a plunge in revenues caused by massive job losses,” said Nancy Vanden Houten, an economist at Oxford Economics.
In addition, the government needs to borrow to cover the shortfall in revenue that will occur because the Trump administration has delayed the deadline for tax payments this year from April to June.
The Congressional Budget Office is forecasting that the government will run a record deficit of $3.7 trillion this year, far above the $1 trillion-plus annual deficits recorded from 2009 through 2012 when the government was fighting the 2008 financial crisis and a deep downturn that followed.
The deficits would be even higher but the Federal Reserve has cut its benchmark short-term interest rate to a record low near zero and is buying trillions of dollars in government bonds and mortgage-backed securities to push long-term interest rates, which were already at record lows, even lower.
Private economists believe that the government has little choice but to spend the money now to prevent an even worse downturn and possibly even a situation like the Great Depression of the 1930s.
Under the plans the Treasury unveiled on Monday, the government will borrow $4.48 trillion this budget year including a projected $677 billion in borrowing in the July-September quarter. The budget year ends on Sept. 30.
In a stark demonstration of how the government’s financial situation has changed, three months ago, before the coronavirus outbreak caused widespread shutdowns in the United States, the Treasury was projecting that it would be able to pay down $56 billion in debt during the quarter.
CBO is projecting the U.S. economy will shrink by a record 40% at an annual rate in the current April-June quarter.