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‘No free lunch,’ economic stimulus debt has to be repaid. Here’s how

The U.S. Debt Clock shows in real time the ever-rising U.S. debt load, with an amount expected to top $25 trillion as the government rolls out $2.2 trillion in economic stimulus.

The Coronavirus Aid, Relief, and Economic Security Act provides $1,200 checks to taxpayers and forgivable loans to small businesses and other loans for industry to help ward off a national economic collapse.

How to repay the debt isn’t drawing much concern or discussion in Washington these days, with politicians and government officials saying that’s a worry for another day — that to do nothing now would be far more damaging to the economy.

Still, “the first thing to remember with regard to financing government spending is that there is no free lunch,” said John Scott, professor of economics at University of North Georgia. “When government spends, we will have to pay for that spending.”

The Poynter Institute, a resource organization for journalists, has reported that the U.S. government would “borrow the money it would send to you for an economic stimulus by issuing Treasury bonds.”

Because Congress suspended the “debt ceiling,” or limit on debt it could incur, for two years in 2019, the government can go into as much debt as it wishes, Poynter said.

Bonds are sold to banks, and if the banks don’t have enough money to buy them, the Federal Reserve will lend them as much as they need, Poynter said, citing national news website Axios.

“The banks then turn around and sell the bonds, at a small profit, to investors from around the world,” Axios says. 

Bonds are typically attractive to investors in uncertain times, so there is always a market for them.

The Federal Reserve spends money on bonds “with newly created money,” Scott said.

More dollars in the economy sounds like a good thing, but it can lead to inflation, he said.

And that’s a heightened concern because the Fed “is buying quite a bit,” said Georgia economist Jeff Humphreys, director of the Simon S. Selig Jr. Center for Economic Growth at the University of Georgia.

Another, perhaps more obvious way to repay the stimulus and national debt in general, is by increasing taxes, economists say.

Higher taxes hurt family finances but they also “depress economic activity in the economy,” Scott said. “Government gets larger, people and businesses get smaller.”

“I think we will see higher inflation over the next 10 years,” Humphreys said, adding that taxes and interest rates also could rise.

While some in government may think extreme measures must be taken in unprecedented times, economists still worry.

Steve Forbes of Forbes magazine said inflation can produce further economic crises.

“What we should do is issue bonds … where we use existing money to finance these programs,” he said.

More debt is on the way as Congress approved more economic stimulus on Thursday, April 23, including $250 billion more for a small business payroll loan program that ran out of money last week.

Senate Majority Leader Mitch McConnell said Wednesday, April 22, that Republicans will be extremely reluctant to engage in more spending, particularly for the states.

“We all have governors who would love to have free money,” McConnell said on the Hugh Hewitt radio show. He added: “We’re going to push the pause button here.”

The stimulus, maybe better dubbed as a rescue package, has many goals, including propping up businesses so they can continue to pay workers and otherwise stay afloat.

As far as the individual checks, they will help pay the bills for many families but won’t go a long way for those struggling with layoffs. However, sttimulus also is helping to boost jobless benefits through a $600 weekly check.

Kiplinger, a business and financial advice publication, suggests using the money to pay off high-interest bills, shoring up emergency funds and putting it toward retirement or college accounts., 

The Associated Press contributed to this report.