Key Insights: The U.S. Public Debt Situation
Keybridge investigates the U.S. public debt situation and analyzes the main drivers of growing deficits and debts. Additionally, a balanced approach for future debt reduction is examined.
The downgrade of the U.S. debt rating in August 2011, the contentious debt ceiling debate in Summer 2011 and the last-minute deal to avert the fiscal cliff in January 2013 have all elevated the importance of understanding the U.S. public debt and its economic implications. Federal outlays have steadily been outpacing federal receipts, which has led to growing budget deficits and debt. These trends are forecasted to intensify over the next decade, as mandatory spending rises and more Americans leave the workforce. High deficits and debt can hurt the United States by decreasing productivity and crowding out investments in infrastructure. Currently, the U.S. appears to be safe from a debt crisis, given its historically low borrowing costs; however, a debt crisis outbreak could cause a large decline in market confidence, a spike in bond yields and a collapse in the value of the dollar. Going forward, a balanced deficit reduction package would combine stronger GDP growth and fiscal consolidation that takes the form of both spending cuts and revenue increases. In this Key Insights report, Keybridge explains the main drivers of deficits and debt, their economic implications, and a potential future debt reduction plan.