The Trump administration identified student loan debt and low birthrates as the largest risks to the U.S. economy in a new analysis released on Monday.
“Student loan debt has reached almost 1.6 trillion, doubling from 800 billion in 2010,” the Office of Management and Budget said in the analysis, a follow-up to last week’s budget proposal. “The price of tuition, school fees and childcare has risen 34 percent since 2010, compared with just 16 percent for all items, making the cost of raising children unaffordable for many and potentially contributing to a falling birthrate.”
Despite flagging student debt as a risk, President Trump’s budget proposal would cut federal student loan subsidies for college and require student borrowers to allow for the Department of Education to access their tax returns to verify income.
The report did not list as risks trade wars or the global slowdown that outside economists, including those at the Federal Reserve, have cautioned could cause the U.S. economy to hit a soft patch over the next several months. The report does acknowledge, though, that the U.S. would suffer if trade partners suffered a downturn.
Another risk identified in the report is the increase in loans to individuals or companies with large amounts of debt — a dynamic that some see as similar to the run up to the 2008 financial crisis.
The analysis also cites the recent run up, and then collapse, of the cryptocurrency market as a sign investors are willing to take additional risks. “The cryptocurrency bubble has partially deflated without significant impact, but similar manias always pose a volatile threat to the economy,” it says.
Another red flag for economy according to the administration: Bigger federal government deficits. Even under the rosiest of economic scenarios laid out by the president’s budget, deficits would continue to rise over the next decade.
“Bringing the deficit under control while continuing to deliver high quality services is as difficult as it is crucial to the future prosperity of the American people,” the analysis says.
One side effect of higher deficits is that investment in federal debt crowds out investments in businesses. Another is that the government devotes more money to paying interest and less to other programs.
Despite what the administration sees as risks to the economy, the analysis released on Monday predicts no change to the rate of economic growth between 2018 and 2019. The Trump administration also expects unemployment to drop further in 2019, to from 3.8 percent today to 3.6 percent.
The administration’s economic growth prediction for 2019 is far more optimistic than those from independent experts or other government agencies. Nevertheless, the administration sees annual growth rates at or above 3 percent through 2024, which would be the end of Trump’s second term if he is re-elected.
