The Congressional Budget Office announced this morning that the budget deficit is increasing from $1.3 trillion to $1.5 trillion in the current fiscal year. This amounts to about 10% of GDP, slightly less than last fiscal year. To see how this trend affects our national debt, the national debt will increase to 70% of the GDP in this fiscal year. This compares to 2008, where the national debt was 40% of the GDP.

Based upon these estimates, the Director of the CBO, Douglas Elmendorf, stated that the national debt will be unsupportable unless Congress decreases substantially the growth in federal spending, substantially increases revenues, or pursues some policies that are a combination of the two. He also added that these policies may have to be imposed gradually, so as not to cause a sudden negative effect upon the economy of the country.

The CBO, in other economic news, predicted that unemployment will remain at about current levels until at least September. By next year’s election they foresee that it will be slightly reduced to about 8.2%.

Normally, it would be hard to imagine how Congress will try to solve this problem, in either the short or the long term. However, Paul Ryan has been placed in charge of assigning spending levels for the government for the rest of this fiscal year. Then, the Appropriations Committee will be required to determine spending levels from March on in a continuing resolution.

The real long-term problem, I think, is the problem of interest on the national debt, and how that will affect federal spending in the future. Why this is a real problem in the future is that interest rates at some time will necessarily increase. But few politicians are behaving as if this is something on their radar. As long as foreign nations are willing and able to purchase our debt, everyone seems happy. But something that nobody is considering is that much of our debt is purchased by Social Security. As more is spent by the SSA than is received, it will be purchasing much less of our debt, making us even more dependent upon the good will of countries like China, eventually permitting them to affect our policy decisions at an even higher level.