According to Jared Bernstein, the U.S. is winning debt shock if the effort continues, which looks like an unsustainable student loan.
exist New York Times on-ed On Wednesday, he admitted that he was a long-term dove in terms of budget deficits, after previously arguing that fiscal austerity often does more harm than good.
“No more. I joined the Hawks like many other long-term pigeons because our country’s budget math has become more dangerous,” Bernstein wrote.
In particular, he pointed to the mathematics surrounding economic growth and debt interest. Bernstein explained that if GDP expands faster than interest rates on its debt, the government could maintain budget deficits, explaining on the basis of research by economist Olivier Blanchard.
This is where the student debt analogy comes from. As long as college graduates don’t borrow too much and their income grows faster than their loan bills, they can keep up with monthly payments.
“Instead, if they borrowed the hilt and if their student loan debt started to grow faster than their income, they could be in trouble very quickly,” Bernstein said. “That’s where our country is now.”
Given that this is an ominous warning The illegal rate has soared Among student loan borrowers, Confiscated wages Credit score plummeted.
According to the character Brookings Agency. Meanwhile, the total amount tripled from $387 billion to $1.8 trillion during this period, growing faster than any other form of household debt.
When it comes to the financial situation of the federal government, the U.S. debt costs are more benign than past revenues. Since the early 2000s, inflation-adjusted yields on the ten-year term are lower than the 10-year forecast for economic growth.
But recently changed, and now the two converge slightly above 2%, partly due to government spending during the pandemic and higher inflation rates – which forced the Fed to actively raise interest rates, thus increasing yields.
“This is a potential game changer for debt sustainability,” Bernstein said.
He did not mention that the Biden administration also increased the cost of inflation with huge spending.
Instead, he pointed to President Donald Trump’s economic policy, the trade war and tax and expenditure bill he signed last week as law.
High tariff rates will reduce economic growth while increasing inflation and interest rates. At the same time, tax cuts will increase debt and may increase interest costs on repair costs, he added.
To avoid debt shocks, forcing the government to sharply cut spending or raise taxes, Bernstein recommends a pre-determined “breaking glass moment” and binding fiscal responses.
The U.S. has paid more interest on debt than it is on Medicare and Defense. These interest payments will reach $1 trillion next year, just behind the government’s largest spending, according to to the committee responsible for the federal budget, a think tank.
Meanwhile, Trump’s tax cuts and spending is expected to increase by trillions of dollars in the coming years, Debt to GDP ratio It soon surpassed the record of World War II.
“But the path remains unsustainable: in a strong economy, the main deficit is much larger than usual, the debt-to-GDP ratio is approaching post-war heights, while higher real interest rates take debt and interest expenses as share of GDP as a share of GDP than it might have been last month,” Goldman Sachs said.
