The CBO and Elk Grove zoo project - Could the growing federal debt escalate interest rates stalling zoo construction?

Predicting the economy in three years, much less interest rates, is an imperfect science. Three years from now, the American economy could grow at historic rates.

Conversely, if we look back to the first days of 2020, unless you were a scientist at the CDC, who would ever think a large segment of the economy would have shut down? But it happened with the worldwide COVID-19 pandemic.

While making predictions about the economy can be a risky endeavor, there are instances when forecasts should significantly influence decision-making. A recent analysis from the non-partisan Congressional Budget Office is one such instance. 

Given the CBO's status as a trusted non-partisan agency, this analysis should be regarded with utmost seriousness, particularly by policymakers whose decisions can profoundly affect people's economic well-being (the report can be viewed here).

As highlighted in this CNN report, CBO director Phillip Swagel has issued a stark warning. The combination of a growing national debt and promised tax cuts - regardless of their source, be it Biden or Trump - could lead to a catastrophic economic scenario. 

Swagel drew attention to the 45-day tenure of former British Prime Minister Liz Truss, a period marked by her promise of tax cuts amidst escalating debts. This mix triggered turbulence in the bond market, causing interest rates to skyrocket.

Budget deficits and the national debt have grown under Democratic and Republican administrations, which Swagel says has put the American economy on a dangerous trajectory. Swagel noted that this combination is the perfect recipe for increasing interest rates, exclusive of actions by the Federal Reserve.

The CBO report states "Such large and growing debt would slow economic growth, push up interest payments to foreign holders of US debt, and pose significant risks to the fiscal and economic outlook."

As noted, predicting any future economic activity is, at best, inexact. The CBO's warnings, however, should not go unheeded. 

Given that Elk Grove's zoo relocation finance plans hinge on favorable interest rates, even modest increases in the next two to three years could make bond financing untenable. In this scenario, zoo construction could end before it evens starts.

The Elk Grove city hall crew should take note. 

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