The Treasury Department announced that it would borrow nearly $3 trillion for the second quarter of 2020 — five times the previous record for borrowing.
The $2.999 trillion dwarfs the previous record of $1.8 trillion borrowed for the entire year in 2009 at the height of the financial crisis.
Congress has been spending money like drunken sailors who hit the lottery the last month, so the number is no surprise. But the massive debt will initiate an interesting financial experiment: How much debt can the U.S. absorb without imploding?
“Even before the pandemic there was going to be some increased funding needs going forward. But now all things are out the window,” said Mike Lorizio, senior fixed income trader at Manulife Investment Management in Boston.
Monday’s estimate assumes a cash balance of $800 billion at the end of June
Treasury appears to be a lot more optimistic about the July-September quarter.
Treasury said it expects to borrow $677 billion during the July-September quarter, assuming an end-September cash balance of $800 billion.
It borrowed $477 billion through credit markets in the January-March quarter, ending the period with $515 billion in cash.
Congress may very well blow that number up when it presents the bill for a fourth bailout. Despite objections from Senate Republicans, the Democrats in the House under Nancy Pelosi are charging full speed ahead with a bailout of state and local governments who are hard hit because of the lockdown.
But the president is as skeptical as Senate Majority Leader Mitch McConnell, who wants to wait a while to see what impact that $3 trillion the U.S. is borrowing will have on the economy. It may be as former White House economic adviser Kevin Hassett believes that another stimulus bill won’t be needed.
Trump believes the bailouts would mostly go to states run by Democrats.
The president continued, “It’s not fair to the Republicans because all the states that need help — they’re run by Democrats in every case. Florida is doing phenomenal, Texas is doing phenomenal, the Midwest is, you know, fantastic — very little debt.”
The president named California, Illinois and New York as examples of states that are currently run by Democratic governors and are in “tremendous debt” because he said they “have been mismanaged over a long period of time.”
New York Gov. Andrew Cuomo criticized Trump’s “bailout” comments Tuesday, saying, “Every state has coronavirus cases, and it’s not just Democratic states that have an economic shortfall. Republican states have an economic shortfall.”
Cuomo may be right. But neither Texas or Florida is demanding a $40 billion bailout like Illinois. And because of the relatively good management of finances, most red states need less than overspending blue states.
But Trump overstated his case. Those GOP-led states are not doing “phenomenal” they are hanging in there and will be asking for less in the fourth bailout being crafted by Pelos than Cuomo and the Democrats.
Trump has said he’s open to a state bailout but also wants to wait and see how the $3 trillion Congress has already spent is working. Democrats want to panic the government into bailing them out not only for the coronavirus but for decades of fiscal mismanagement.
If Trump goes to the voters with that argument, he wins.
Editor’s Note: Want to support PJ Media so we can keep telling the truth about China and the virus they unleashed on the world? Join PJ Media VIP and use the promo code WUHAN to get 25% off your VIP membership.