Dire Consequences Ahead Due to Skyrocketing National Debt

(The Center Square) – The US national debt is $26.7 trillion, and according to the Congressional Budget Office, the federal budget deficit is approaching $4 trillion.

Current projections put the national debt at $45 trillion in 2024, rising to $78 trillion by 2028.

“It seems reasonable to ask whether debt and deficits still matter,” William Cohan writes to Vanity Fair, in an article titled “Why Wall Street Doesn’t Panic at Exploding Debt and Deficits ?”

Apparently debt and deficits don’t matter as much as they used to, several analysts note.

“At this point, I don’t think anyone is very worried about debt,” Olivier Blanchard, senior fellow at the Peterson Institute for International Economics, told The New York Times. “It is clear that we can probably get where we are going, which is debt ratios above 100% in many countries. And it’s not the end of the world. »

“Instead of panicking,” notes the New York Times, Wall Street “views this seemingly bottomless need to borrow benevolently. The interest rate on the 10-year Treasury note – also known as the yield – is around 0.7%, well below what it was just over a year ago , when it was around 2%.

The United States is one of the most indebted countries in the world. According to the US National Debt Clock, the total debt to GDP ratio is 153.53%.

According to the Bank for International Settlements, “when public debt exceeds 85% of GDP, economic growth slows”. The BIS is owned by 62 central banks from countries around the world that collectively account for 95% of total global GDP.

He argues that when a country’s federal debt exceeds the 85% threshold, it will be less likely to face an unexpected crisis.

“Federal budget deficits in the United States have never been larger than they are now in absolute terms, although as a percentage of GDP they were much larger, especially during World War II” , says Mike Patton, senior contributor at Forbes.

Federal funding in response to the coronavirus shutdowns prevented “a much worse recession or maybe even a depression,” Patton says. “Although excessive borrowing may have been the lesser of two evils, growing debt will have ramifications in the future.”

Cohen argues that “America is at a crossroads. If the national debt increases as expected [$45 trillion in 2024 and $78 trillion in 2028]Americans will feel the pain as labor markets tighten, the gap between the top 10% and the bottom 50% widens, and social unrest increases.

But budget constraints “are not at all what economists thought they were,” Daniel Ivascyn, chief investment officer at PIMCO, told The New York Times. “When you have a central bank that’s essentially funding those deficits, you can drive debt levels to higher debt levels than people envision.”

The level of debt-to-GDP ratio above 100% may be relatively new in the United States” but it is something that Japan surpassed in the mid-1990s and the debt-to-GDP ratio in Japan is rising now over 200%,” notes Simon Moore, a senior Forbes contributor. .

“The current US debt stance, if it continues, does not inspire long-term confidence, and rating agencies and financial markets are starting to take notice,” Moore added. “Right now, this US debt is not a problem, but if it ever becomes one, the consequences would be disastrous. The United States is one step closer to this scenario.