The federal government has embarked on a massive borrowing and spending program amidst the economic, financial and human consequences of the coronavirus pandemic. As events proceed, we will learn more about ability and means by which the government will finance the fiscal and monetary initiatives.
The federal government’s financial condition has not been improving in recent years, and more than a few observers had already been raising more concern about the sustainability of federal finances, before the pandemic really arrived on the scene.
The people writing the federal government’s annual financial report have been part of that growing concern. As we’ve noted, the number of times the word “unsustainable” is used in the report has been marching significantly higher in the last decade as the report’s authors spill more ink for the questions and concerns about the sustainability of the federal financial path under current law and policy.
For example, that annual report has been including a regular discussion of what is called the “fiscal gap,” calculated as the combination of spending cuts and/or tax increases required to keep the debt to GDP ratio from unsustainably mushrooming in the future.
Those very-large numbers were alarming even before the coronavirus crisis hit, and the federal government has reacted in a way that suggests sustainability is not a question. We shall see.
For now, however, we simply note an interesting related feature of the annual report in the last two years. The report lists liabilities on the balance sheet, but also includes related disclosures discussing possible future spending obligations that are not included in formal liabilities.
In all of the financial reports for 1998 to 2017, the word “pandemic” did not appear. However, it appeared in the report covering fiscal 2018, which came out in early 2019, for the first time. It was repeated in the report for 2019, which came out a few weeks ago, in similar language:
Further, there are other risks, such as health pandemics, cyberattacks, military engagements, and economic crises, that could affect the federal government’s financial position and condition and its financial management in the future. These risks are not fully accounted for in the government’s long-term fiscal projections.
These are valuable cautionary notes.