By The Washington Post · Christopher Ingraham · BUSINESS, US-GLOBAL-MARKETS
The price tags for coronavirus relief packages in the United States keep getting bigger as the scope of the epidemic, and of the damage it will wreak on the economy, grows larger and more alarming with each day. Democrats and Republicans, some of whom have long preached fiscal restraint, are suddenly interested in throwing as much money at the epidemic as possible.
After a decade - and in the midst of a presidential campaign - when there were repeated arguments about what America can afford, policymakers appear to be ignoring issues of cost and deciding to spend, spend, spend.
So how can the nation suddenly afford to spend a trillion or more on the coronavirus?
The answer, in one word: debt.
As long as Congress authorizes it, the Treasury Department can issue as much debt as it needs to pay the nation's bills. It does this by selling Treasury bonds to investors - foreign governments, banks, mutual funds, and many others who want to keep their money in a safe place. As long as investors keep buying American debt, the U.S. can keep selling it.
As of right now, the U.S. federal debt (not including government securities held by Social Security) stands at about 79% of annual gross domestic product. That's high, historically speaking, but not a record - in the immediate aftermath of World War II, for instance, federal debt briefly spiked above 100% of gross domestic product.
As the coronavirus pandemic has send stock markets plunging in recent weeks, investors have signaled a rapacious demand for U.S. government debt.
At one point earlier this month, the 10-year Treasury bond traded as low as .54% during this crisis. When you account for inflation, that means that investors were effectively willing to lend money to the U.S. government for an entire decade at a loss.
Investors have been willing to do this because they're looking for a safe place to park their cash at a time of massive uncertainty caused by the coronavirus pandemic.
Amid intense volatility in the bond market and panicked selling in recent days, the 10-year Treasury bond has moved up to .99%, as of Friday morning. That's still extremely low by historic standards, so low that the Treasury Department is considering issue a 50 year bond for new spending.
The question is: How long will investors continue to lend money in this way?
Some countries, such as Japan, have lived with high debt levels for years, while others, such as Greece and Ireland, have seen financial crises as a result of their heavy burdens.
Few think that the U.S. debt burden right now is something that should preclude big spending to fight coronavirus. In time, when the economy recovers, the debt burden come could down thanks to a combination of economic growth, tax increases and spending reductions.
But before the coronavirus hits, the government was to set spend about $1 trillion more in 2020 than it collected. The coronavirus-induced recession and the new spending could double that this year.
A lot is riding on the continued confidence of global investors.