US Debt Mountain Poses Serious Concerns, Researchers Warn
The United States is facing a daunting challenge as its $33 trillion debt continues to grow at an alarming rate. Both policymakers and legislators cannot rely on economic growth to bail the country out of its debt crisis, according to a report from the Peter G. Peterson Foundation.
The nonpartisan research group dedicated to monitoring fiscal issues in the US highlighted the soaring public debt balance, with the country’s debt-to-GDP ratio reaching 97% by the end of 2022. Projections from the Congressional Budget Office indicate that this ratio will rise to 98% by the end of 2023. If left unchecked, the US is on track to hit a record-high debt-to-GDP ratio of 107% by 2029 – the highest ever recorded.
This situation differs from the years following World War II, when the nation’s debt-to-GDP ratio peaked at 106% in 1946 before gradually declining. The combination of favorable market conditions and post-war economic growth facilitated a reduction in the ratio. However, experts argue that such a scenario is unlikely this time.
Researchers issued a warning to lawmakers, stating that the current projections for large primary deficits, demographic trends, and Federal Reserve policies aimed at controlling inflation suggest that the US cannot rely solely on GDP growth to alleviate its debt burden. Lawmakers need to take this moment as a wake-up call and consider available policy solutions to address the current fiscal and economic outlook.
During World War II, the US tackled its debt through primary surpluses in the national budget and the Federal Reserve’s efforts to keep borrowing costs low by limiting Treasury and bond yields. These measures were complemented by a significant economic boom that boosted GDP.
Despite an impressive projected GDP growth of 5.4% in the third quarter, the US government fails to demonstrate progress in reducing its budget deficit. The absence of agreement on a new budget for the fiscal year raises concerns about a potential shutdown event in 2023.
Additionally, the Federal Reserve has warned that it will maintain higher interest rates for an extended period as it monitors inflation closely. This poses a challenge for borrowers, including the US government. Experts believe that higher rates and bond yields could make it increasingly difficult for the US to service its debt, with Goldman Sachs estimating that interest expenses on the national debt could reach a new record by 2025.
Another significant issue is the $7.6 trillion of debt that the government needs to repay within the next year – a substantial 31% of the total debt balance.
Growing fears surrounding the US debt raise concerns about the government’s ability to find buyers for Treasurys in future auctions. Columbia Business School professor warns that failed Treasury auctions could result in the Federal Reserve stepping in to buy US debt securities, potentially exacerbating inflation.
It is clear that the US faces a daunting task in managing its mounting debt. Policymakers and legislators must urgently seek viable solutions to safeguard the nation’s financial stability and economic future.
I have over 10 years of experience in the cryptocurrency industry and I have been on the list of the top authors on LinkedIn for the past 5 years.