The situation is actually far worse than most people realize. That $23 trillion figure fails to account for massive unfunded obligations facing the U.S. government through programs such as Social Security and Medicare.. This so-called fiscal gap, which measures the difference between projected revenues and spending over the long-run, threatens future generations with ten times the current debt burden.
All of this is happening while America is experiencing one of the longest economic expansions in the country’s history with unemployment at historic lows, wages rising (especially for those with lower incomes), and an economy that continues growing and expanding despite headwinds.
No matter, how one squares the numbers, they all tell the same story. The U.S. fiscal situation is highly unsustainable and points toward a fiscal crisis in the making.
By 2050, debt borrowed in credit markets is projected to reach 180 percent of gross domestic product (GDP). That’s far higher than the U.S. has ever experienced, and it won’t stop rising there.. Greece experienced its debt crisis when its debt hit that same, 180 percent mark. It raises the question: who would bail the U.S. out.
A full-fledged fiscal crisis isn’t the only thing we need to worry about, however.
Federal debt that’s too high and rising compromises income growth, leaving us all poorer. It increases interest payments that crowd out spending on other priorities. It exerts pressure on interest rates across the economy, including for mortgages and auto loans. It weakens our nation’s ability to respond to the next recession or emergency by leaving little fiscal space when it’s most needed. And it imposes an unfair burden on future generations, imperiling the American Dream
Washington’s profligacy and lack of a credible commitment to fiscal responsibility also threatens the country’s valuable status as the supplier of the world’s primary reserve currency: the U.S. dollar. While financial markets are not yet showing signs of concern, they may be underpricing the real risks for lack of suitable alternatives to stash away cash in relatively safe assets.
In a 2010 National Tax Journal paper, Leonard E. Berman et al. argue that the worldwide market for government securities may be of a winner-take-all nature, which could generate a bubble with sudden and severe implications for interest rates should said bubble burst
Washington is playing with fire.
Romina Boccia is the director of The Heritage Foundation’s Grover M. Hermann Center for the Federal Budget.