The Threat Of US Debt Inflated Away Haunts Its Fiscal Outlook
Mint Mumbai|February 16, 2024
Aconsensus on fiscal irresponsibility has lent this risk plausibility
CLIVE CROOK
The Threat Of US Debt Inflated Away Haunts Its Fiscal Outlook

One of the few things US Democrats and Republicans appear to agree O losers. As a result, the country's looming financial breakdown gets barely a mention as elections approach. Last week's bracing projections on the deficit from the Congressional Budget Office (CBO) passed almost unnoticed. How long this studied inattention can be sustained or what it will take to get Washington even talking about solutions is anybody's guess. Meantime, the odds of an outright fiscal crisis within the next few years are rising steadily.

The CBO now expects a deficit of $1.6 trillion, or 5.6% of GDP, this fiscal year.

That's for an economy at full employment and growing pretty well. Under current law, the gap between spending and taxes will keep widening over the next decade, rising to $2.6 trillion (6.2% of GDP) by 2034. Despite steady economic growth, debt will rise from 97% of GDP this year to 116%. From there, it just keeps going up.

Believe it or not, this is a rosy scenario.

First, the outlook includes no recession.

The pandemic crushed output and demanded strong fiscal stimulus, a combination that added 20 percentage points to the debt ratio in a single year. The next economic setback is a matter of when not if.

Even a much milder reversal than that of 2020 would push the numbers forcefully in the wrong direction.

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