Top economist says $39 trillion national debt leaves government worse prepared for recession than ever | Fortune

"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."

"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."

"Now, Slok says, both halves of that playbook are compromised. Start with the Fed. Its main tool is the short-term interest rate, and the goal of cutting it is to make it cheaper to borrow, which requires inflation to be reasonably under control-otherwise the influx of cheap money just makes prices rise faster. But inflation right now is "proving stickier than the Fed expected," Slok wrote, driven by oil prices, tariffs, and immigration restrictions that have tightened the labor supply."

Gross national debt is about $39 trillion and growing rapidly, with debt held by the public already exceeding annual GDP. Interest costs alone run around $3 billion per day, surpassing annual federal spending on Medicare or Medicaid. This debt burden reduces the ability of the central bank to respond during downturns. In typical recessions, the Federal Reserve cuts short-term rates to lower borrowing costs while the federal government increases spending through measures like tax cuts or infrastructure to stimulate demand. Current conditions compromise both parts of that response. Inflation is proving stickier than expected due to oil prices, tariffs, and immigration restrictions that tighten labor supply, limiting how aggressively rates can be cut.

Read at Fortune