February 5, 2021

How Are We Paying for the Federal Response to the Coronavirus?

The federal government has enacted five pieces of legislation that provide relief to individuals and corporations that have been affected by the COVID-19 pandemic. To finance those provisions (which will cost about $3.5 trillion), as well as to dampen the effects of the economic downturn, the Treasury Department has ramped up its borrowing. This blog provides additional detail on the accumulation of debt since the onset of the pandemic in 2020.

Since March 1, 2020, Treasury borrowing has risen by more than $4 trillion. Most of that increase has occurred since March 30, 2020, which was just after the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest piece of relief legislation was enacted.

Debt has increased rapidly since the end of March 2020

A majority of the new debt has been issued in the form of Treasury bills. Such securities, which mature in one year or less, account for 57 percent of the increase in debt since March 1. Treasury notes, which mature in 2 to 10 years, account for 30 percent of the increase. Treasury bonds, which mature after more than 10 years, along with Treasury inflation-protected securities and floating-rate notes, combine to account for 13 percent of the increase.

Since the end of March 2020, the government has significantly increased its borrowing

The government is paying very little interest on those new Treasury bills as rates dropped when the extent of the pandemic became clear. For the 3-month bills that were issued on January 26, 2021, the government paid investors an interest rate of 0.07 percent. hat is considerably lower than the 1.55 percent interest rate that was paid on the 3-month bills that were issued a year ago.

Federal borrowing is projected to continue increasing in the months ahead. The Treasury anticipates that they will borrow $1.13 trillion during the January–March 2021 quarter.

The closure of much of the economy was a critical component of the nation’s response to COVID-19. The federal government’s decision to support the individuals and businesses that were affected by the closure was a necessary next step. Fortunately, the Treasury Department has been able to quickly raise the funds needed for the relief legislation at low interest rates; when the economy has stabilized, though, focus needs to return to the country’s underlying fiscal situation.


Related: How Does The Treasury Issue Debt


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