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U.S. Treasury To Borrow $3 Trillion To Finance Pandemic Relief Programs

RACHEL MARTIN, HOST:

We've talked about the huge debt relief bills Congress has approved. To finance them, the Treasury says it will borrow $3 trillion in the April-May-June quarter. That is six times the amount borrowed in the previous quarter. So where's all the money coming from? Let's ask David Wessel, director of the Hutchins Center at the Brookings Institution. Hi, David.

DAVID WESSEL: Good morning.

MARTIN: Where's all the money coming from? The government doesn't just have it already.

WESSEL: (Laughter) No. It doesn't. When the Treasury wants to borrow, it holds auctions. It held one yesterday, another one today and still another tomorrow. What it says is we want to borrow $100 billion. That's this week's auction. It solicits bids. And it borrows from those who offer to lend at the lowest interest rates by giving them IOUs - Treasury notes or Treasury bonds. Who's doing all this lending? Well, there are banks, mutual funds, pension funds and the like.

There are a lot of global investors who had money outside the United States who are kind of frightened and looking for a safe place to put it. And for all the concern we have about what's going on in the United States, nothing is considered safer than U.S. Treasury debt. And then there's the Federal Reserve, which, through the magic of central banking, prints money, uses it to buy Treasury bonds - not directly from the Treasury, but from dealers who buy it from the Treasury and then sell it to the Fed.

MARTIN: So all that borrowing - I mean, the federal government must be accruing a ton of interest. How - is that how it works?

WESSEL: Well, it is, of course. But interest rates are extraordinarily low. The Treasury today will borrow $32 billion for 10 years. And it'll pay well under 1% because interest rates are so low. In fact, for the first seven months of the government's fiscal year - October through April - the U.S. government spent no more on interest than it did in the same months of the previous fiscal year even though the debt was trillions of dollars higher.

MARTIN: So trillions of dollars of borrowing on top of the trillions of dollars the government already owed, this cannot possibly go on indefinitely.

WESSEL: It certainly can't go on forever. For now, though, the Treasury is having no trouble borrowing all this money at low interest rates. And that's a good thing because they need the money now to invest in the public health, to help people through the pandemic and to keep businesses on life support so we can - until we can safely reopen the economy. No one knows when global investors will stop lending or demand higher interest rates.

Although scary predictions that we're headed for a crisis, a financial crisis, because of the debt - well, we've been hearing them for years and it hasn't come true yet. But given the costs of an ageing population and rising health care spending, the federal debt was on an unsustainable trajectory before the pandemic. It's still on an unsustainable trajectory. And someday, we're going to have to cut spending and raise taxes. But this is not someday.

MARTIN: (Laughter) Right. So now that you've told us how we can't afford to spend this money, can you just remind us what we are spending it on? What's it going to be used for?

WESSEL: Well, the government is taking in a lot less money because so many fewer people are working and because it told people they didn't have to pay their income taxes on April 15. They could wait until July 15. And Congress, as you said, has expand - has approved a lot of spending, the $1,200 a month - $1,200 adult stimulus, the expanse of...

MARTIN: Yeah.

WESSEL: ...Unemployment benefits and all that. The Congressional Budget Office says, in the first seven months of the fiscal year, revenues were down 10% from last year. Spending was up 30% above last year. So that's where the money is going.

MARTIN: David Wessel of Brookings. Thank you.

WESSEL: You're welcome.

(SOUNDBITE OF THE GREG FOAT GROUP'S "THE DANCERS WALTZ") Transcript provided by NPR, Copyright NPR.