Trillions in coronavirus spending could explode deficits to World War II levels

The trillions of dollars Washington is spending to combat the COVID-19 epidemic are likely to push annual fiscal deficits relative to the size of the U.S. economy close to levels last seen during World War II.

President Donald Trump last weekend signed a $2.2 trillion bipartisan financial-rescue package, but he and congressional leaders are already talking about another huge spending bill to keep the economy on life support.

Even before the coronavirus crisis exploded, the U.S. was on track in fiscal 2020 to post a deficit of slightly over $1 trillion for the first time since 2012, according to the most recent government estimate. The current fiscal year runs from Oct. 1, 2019, to Sept. 30, 2020.

Now there’s no telling just how high the deficit will go.

A new study by Morgan Stanley estimates the deficit will total at least $3.7 trillion in calender year 2020 and an additional $3 trillion in calendar year 2021. That suggests nearly $5 trillion in extra deficit spending in the next two years, financed by the sale of Treasurys, largely to the Federal Reserve.

Altogether, deficit spending in the next two years could drive the national debt to around $29 trillion from an estimated $23.6 trillion right now. Previously the U.S. was not expected to reach that mark until 2025.

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