Individuals, corporations, and the economy have all been impacted by the COVID-19 pandemic. To help support Americans, small businesses, and the economy, the federal government has enacted four pieces of legislation that approves the spending of trillions of dollars. The Treasury Department has accelerated its borrowing to begin financing these legislative pieces.
How much has borrowing risen?
Treasury borrowing has risen by $2.5 trillion since the beginning of March. A large portion of that increase actually occurred since March 30, just after the largest piece of relief legislation, the CARES Act, was enacted.
How is new debt issued?
The U.S. Treasury offers marketable securities which are sold at auction in various maturities and traded on secondary markets. At the end of fiscal year 2019, these securities represented 97 percent of all debt held by the public.
According to Peter G. Peterson Foundation, since March 1, 84.2 percent of the increase in debt has been issued as marketable securities in the form of Treasury bills which mature in one year or less. 12.5 percent of the increase has been issued in Treasury notes which mature in two to 10 years. Finally, Treasury bonds, which mature after more than 10 years, and Treasury inflation-protected securities and floating-rate notes, combine to account for 3.3 percent of the increase.
As the economic toll of the pandemic became clear, interest rates for new Treasury bills were dropped. Therefore the government is paying considerably less interest on the bills issued after March 1, compared with those issued before the start of the pandemic.
What will happen next?
During the next few months, we will continue to see federal borrowing increase rapidly. The Treasury Department projected that it will borrow $3 trillion during the quarter that runs from April through June and an additional $677 billion from July through September.
Stimulus money continues to be spent in the hopes that the economy will bounce back from the economic effects from the COVID-19 pandemic. This relief response has been possible because the Treasury Department has been able to quickly raise the funds combined with low-interest rates. The focus right now continues to be supporting individuals and businesses to survive and eventually rebound from this crisis. However, when the situation stabilizes, we must again focus on the country’s underlying fiscal situation, to ensure a strong fiscal future.
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