Why economists are so worried about a huge buildup

The government's skyrocketing debt balance poses problems for the U.S. economy. These include higher inflation, greater market volatility, and a lower quality of life for Americans. Slowing the pace of borrowing is essential for the future, economists told Business Insider.

Thanks for recording!

Access your favorite topics in a personalized feed on the go. download the app

The United States is saddled with the largest public debt in its history, and economists are starting to worry.

The federal debt balance has reached $34 trillion this year, with the government on track to accumulate another $1 trillion in debt every 100 days, according to a Bank of America estimate.

Why is this so worrying?

The debt mountain is a breeding ground for economic problems, including higher inflation, lower quality of life and, in the worst cases, destabilization of the financial system as a whole, according to Les Rubin, a markets veteran who called the U.S. debt situation one of the world's “largest Ponzi schemes.”

It is essential that the United States sells its debt to investors, whether institutions, individuals or other countries. But higher debt levels cast doubt on the United States' ability to keep its promises to continue repaying, and the more people hesitate to buy U.S. debt securities, the more the economy is affected, Rubin says.

The U.S. Treasury sold $22 trillion worth of government bonds last year, but Treasury auctions have seen weak demand recently, suggesting investors may soon struggle to absorb the huge rush of new bond issues.

The most recent auctions of 10- and 30-year bonds generated little enthusiasm as investors eyed higher interest rates and higher inflation. The United States will return to the market in May with a sale of new bonds for $385 billion.

“What would happen if we couldn't sell the debt is we would find ourselves unable to function as an economy. The government survives on debt. If we literally couldn't sell our debt, we wouldn't be able to pay our bills,” Rubin said. told Business Insider in an interview.

Debt itself is inherently inflationary, meaning consumers can expect higher prices if the government doesn't slow down its borrowing.

Indeed, debt constitutes a certain stimulus for the economy, which accelerates hiring and wage growth. If the economy is already at full employment, that also means higher inflation, according to Jay Zagorsky, an economist at Boston University.

Inflation has been at least one percentage point above the Fed's 2% target over the past two years. Prices accelerated 3.5% year-on-year in March, the third consecutive month of higher-than-expected inflation.

A smaller budget

Higher debt could also lead to a lower quality of life for Americans, Zagorsky added. Indeed, the more the debt increases, the more the government must pay in interest to service this debt and the less money the United States must devote to other priorities like Social Security and other crucial elements of the social safety net.

The United States spent $429 billion last year on interest payments alone, according to Treasury data. This represents 240% of what the government spent together on transport, trade and housing.

“Very soon, one of the most important things the federal government is going to spend money on is not defense, not education. It's not going to be housing, it's going to be interest,” Zagorsky said .

Economical consequences

If investors largely lose confidence in U.S. government debt as a safe haven, it would trigger turmoil in financial markets, Rubin warned, because of the sheer volume of U.S. debt held by institutions around the world.

Worst case scenario, he sees markets collapsing if debt levels get too high and people think the U.S. might not repay.

“The trillions of dollars sitting on balance sheets around the world will significantly lose value, if not be worthless. Interest payments could be reduced. This would be a devastating blow to the global economy that would ultimately lead to chaos. We can't let it happen,” he said.

There's not much the government can do to stop these problems from growing, other than stop taking on so much new debt, Zagorsky and Rubin say. Technically, the government could print money to pay its dues, but that would lead to hyperinflation as the money supply skyrockets.

Robust economic growth can make debt more sustainable, but debt grows much faster than the economy: the national debt balance has increased by 86% over the past decade, while GDP has increased by 63%. , according to Fed data.

Economists aren't sure when the national debt will become a real problem for the United States. If the pace of borrowing does not slow, Rubin predicts a crisis will materialize within the next decade.

“It starts slowly, then it accelerates quickly. Right now, I don't think anything is imminent. I would say we have 10 years or less to resolve this problem. I think that might be the optimistic scenario” , Rubin said.

Sources 1/ https://Google.com/ 2/ https://www.businessinsider.com/us-debt-problem-explained-deficit-gdp-inflation-economy-interest-rates-2024-4 The mention sources can contact us to remove/changing this article

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos