President Donald Trump claims Republican’s “Big, beautifulBill will put the United States on a sustainable fiscal path. Goldman Sachs economists say that this won’t stop the country’s debt From levels seen only during World War II, above levels.
Expenditure bill pass Added by House Republicans Tariff revenuewhen interest payments are not included, Goldman Sachs’ Manuel Abecasis, David Mericle and Alec Phillips admitted in a note Tuesday that it would slightly lower the budget deficit. Add to the rise Borrowing feeThey said the bill made the route of the total deficit largely unchanged.
“But this path remains unsustainable: in a strong economy, the main deficit is much larger than usual, the debt-to-GDP ratio is approaching (World War II), and the real interest rate is much higher, making the expense of debt and interest make the share of GDP steeper than the previous cycle,” Goldman Team wrote.
Goldman Sachs
As shown in the above chart, the scale of future debt depends largely on interest rate transfers over the next few decades. Now, $36 trillion The state’s debt accounts for about 120% of GDP, and the Ministry of Finance finds itself borrowing more money to meet the rise in repair costs.
The U.S. has more benefits to debt than it spends on health insurance 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.
“If the debt grows large enough, interest expenses could become so large that stabilizing debt to GDP would require a sustained fiscal surplus because it is economically costly and politically difficult,” Goldman Sachs wrote.
The first Trump and Biden administration responded to the 19th-date pandemic with a war-like budget. But even if the U.S. economy resumed full employment, the gear was never shut down.
Nonpartisan Congressional Budget Office estimate The version of the Republican spending bill passed by the House will increase the deficit by $2.8 trillion over the next decade. White House and some Republican lawmakers debate The forecast should not include the cost of extending Trump’s 2017 tax cut, which will fail to expire without bills this year.
but The $36 trillion issue Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, told wealth.
Finance Minister Scott Bessent explain The U.S. government has a “spension problem”, but not an “income problem”. Goldberg agreed with the former, but he said the U.S. is not taxed compared to the size of the country’s GDP and government spending.
“So, to raise taxes, you have to lower your spending, and you have to lower some combination of the two,” Goldberg said last month. “It sounds simple, but it’s very, very complex in politics.”
Higher interest rates will increase deficit pressure
However, continuing to avoid action will put future legislators in a more stringent position, especially as borrowing costs rise.
Revenues from long-term U.S. fiscal bonds Keep elevated When investors wait for the patient Fed to lower interest rates, focus on A possible resurgence of emerging deficits and inflation may also continue to impose increased pressure on interest rates.
Fixed income experts are too Monitor closely Any changes in foreign demand for U.S. debt. If rising trade and geopolitical tensions destroy the dollar’s status Reserve currencythe U.S. government will also find itself borrowing at a higher interest rate than it is used to borrow.
This means Congress may end up being forced to make increasingly difficult choices in terms of spending and taxation. Goldman Sachs said if lawmakers wait too long, a historic austerity measure may be needed to avoid disaster.
“In this case, one may be concerned that large fiscal consolidation and ongoing fiscal surplus may be self-deception, and if GDP is reduced, the debt-to-GDP ratio may not shrink.”
Of course, politicians will also face the temptation to print more money to pay government bills. The Weimar Republic of Germany tried this strategy after World War I. Devastating over-inflatingexacerbated economic discomfort and social unrest that led to the rise of the Nazi Party.
However, historical warnings have not always attracted the attention of the government.
