The Peter G. Peterson Foundation recently stated that the US $33 trillion debt mountain is bound to become even larger, and policymakers and legislators cannot rely solely on economic growth to get rid of debt problems.
The Peter G. Peterson Foundation is an independent organization dedicated to addressing the long-term fiscal challenges of the United States. The agency pointed out that the US public debt balance is constantly expanding, and as of the end of 2022, the debt to GDP ratio has reached 97%.
According to the prediction of the Congressional Budget Office (CBO), the ratio of US debt to GDP will reach 98% by the end of 2023. The Peter G. Peterson Foundation stated that at this rate, the US debt will reach 107% of GDP by 2029, which will be the highest debt to GDP ratio on record.
In the years after World War II, the debt to GDP ratio of the United States reached a historic high, with public debt reaching 106% of GDP in 1946. In the following decades, due to improved market conditions and post war economic prosperity, this ratio has significantly decreased, but researchers point out that this is unlikely to happen this time.
Given the current predictions of a huge basic deficit, population trends, and the Federal Reserve's focus on controlling inflation, the United States should not be expected to get rid of debt solely through rapid GDP growth, "researchers said in a report on Wednesday. Therefore, the ratio of debt to GDP approaching its highest level in history should serve as a warning to lawmakers that there are many feasible policy solutions for the current fiscal and economic prospects
The debt of the United States during World War II declined largely because of the basic surplus of the national budget and the ceiling set by the Federal Reserve on treasury bond and bond yields, which artificially lowered the government's borrowing costs. In addition, economic growth and prosperity have also boosted the US GDP.
Now, although the US GDP is expected to grow by 5.4% in the third quarter, the government will not be on the track to reduce the budget deficit in the short term. Members of parliament have not yet reached an agreement on the budget for the new fiscal year, which makes it still possible for the 2023 government shutdown to occur.
At the same time, the Federal Reserve has warned that as the central bank closely monitors inflation, interest rates will remain high for a longer period of time. Although the yield of 10-year US treasury bond bonds once hit 5% this week, Federal Reserve Chairman Powell even said recently that the central bank would continue the current volatility of the bond market.
This is bad news for borrowers, including the US government. Experts say higher interest rates and bond yields may make it increasingly difficult for the United States to sustain its debt servicing costs. Goldman Sachs estimates that by 2025, the interest expenditure on US treasury bond bonds may rise to a record level.
What makes the situation even worse is that the US government has a huge debt of US $7.6 trillion due next year, accounting for 31% of the total US debt.
The growing concern about US debt means that the US government may find it difficult to find buyers of treasury bond bonds. A professor of Columbia University Business School recently warned that this may lead to the failure of the US treasury bond auction. At that time, the Federal Reserve will have to step in and buy US treasury bond bonds, which may eventually further exacerbate inflation.