US debt is rising almost 100% This seemed to have no effect on anyone. Not the federal government, not the markets, not the entire U.S. economy, and certainly not ordinary consumers. To them, perhaps this whole fiscal debate seems like an abstract morality play. . Despite the mounting debt, the world was still willing to lend cheaply to the U.S. government. This means American consumers and businesses can also borrow cheaply.
But something changed this summer. Long-term borrowing costs for governments began to rise. Interest rates on 10-year government bonds rose 4.8% That’s up from 3.3% six months ago earlier this week. These long-term interest rates are currently hovering near 16-year highs and are generally much higher than budget watchers expected. Predict.
This means that no matter how ugly previous financial forecasts were, they may still be too optimistic.
The exact reason why long-term interest rates rose so quickly is unclear.answer I don’t Long-term inflation expectations are very stable, so we believe they are related to inflation (or the Fed’s response to inflation, which focuses on short-term interest rates). Rather, economists suggest it’s likely due to a combination of other factors. These include the U.S. budget deficit, the Federal Reserve’s balance sheet shrinkage (meaning selling long-term bonds), and other factors. Rating agency downgrade Total US sovereign debt (plus signal one rating agency maintaining a rating downgrade may also join), political dysfunction, and various international factors.
Whatever the cause, if this situation continues, things could get very messy in the coming years.
If long-term interest rates rise, all the government’s debt will disappear. already The ones you acquire are more expensive to maintain.The same is true in any case new Congress plans to add debt. There is a lot of money in the latter category, as politicians promise that the government will continue to spend more than it collects in taxes.
Unless there is sudden economic growth, rising interest rates mean the cost of servicing debt expands, crowding out our ability to spend on other things we care about.
For a very long time, politicians didn’t have to make difficult choices about which spending programs to cut or which taxes to raise because borrowing to fill budget holes was virtually free. They lived in a world without trade-offs.
Debt may not be so free in the future.
If interest costs rise and economic growth cannot keep up, there will be “fiscal space” to commit to new programs, even those that have the potential to provide significant returns on investment (e.g. resources to support them). ‘ will be significantly reduced. Children from low-income families become more productive and tax-paying adults), or it may be necessary to respond to unexpected shocks (recessions, pandemics, wars).If borrowing costs remain higher than economic growth, the ability to pay for critical programs will also be strained. today.
All of these have obvious solutions. Governments can begin to make more responsible budget decisions by raising revenue or curbing spending. Or, for that matter, by attracting more working-age immigrants to increase the economy’s productive capacity as the country ages.
It’s obvious, but it all still seems impossible.
Lawmakers have recently started making routine financial decisions, such as paying bills on time (while they still can) and passing regular spending bills to keep the government running. even difficult. It is unlikely that lawmakers will make aggressive policy changes to reduce the deficit, especially since any needed changes would be unpopular with some of their core supporters.
The problem is not just general political dysfunction that affects other parts of governance.That long period of free money, when politicians did not face tough trade-offs, made political parties more especially Incompetent in financial matters.
Politicians have become lazy and complacent, willing to offer any good thing to win votes, no matter the impact on the budget. In the past, the main obstacle to deficit reduction was that each party was promising different but expensive things that could, in theory, be paid for off the back of the books. Republicans wanted lower taxes, Democrats wanted them. bigger expenses.
Today, both parties are committed to both. That means President Biden is in favor of: Trump tax cuts extended by 97% Number of households.Republicans are happy Expansion of spending And he promised to leave programs like Medicare intact.
One day, perhaps sooner than anyone would like, someone will have to break a promise.
