The government could drown in debt for decades to come, Renaissance Macro said in a recent research report.
The Congressional Budget Office forecasts that the debt ratio could nearly double to 181% by 2053.
“Rising debt + rising interest costs – debt burdens are catastrophic,” the research firm said.
According to Renaissance Macro Research, the US government could fall into debt in the coming decades – something that could spell disaster for markets and the economy.
The research firm pointed to a recent projection from the Congressional Budget Office, which predicted that the federal debt-to-GDP ratio would nearly double from 98% in 2023 to 181% in 2053. In an alternative scenario prepared by the Committee for a Responsible Federal budget could push the debt ratio even higher, reaching 222% of GDP in 2053.
Those projections show the government “drowning in debt,” said Renaissance Macro analyst Stephen Pavlick. That could spell trouble for the US given the current macroeconomic environment, in which interest rates have been raised aggressively to control inflation.
“CBO 30-year projection is bleak,” Pavlick said in a note Friday. “Rising Debt + Rising Interest Costs – Debt Service Costs Disaster.”
Fed officials have aggressively raised interest rates over the past year to curb inflation, a move that has increased the cost of borrowing for debt holders. Currently, interest rates are at their highest level since 2001, with the Federal Funds rate target raised to 5.25%-5.5% in July.
Meanwhile, the government’s debt service cost was $475 billion in 2022, 35% more than the $352 billion spent in 2021 to service the national debt. The cost of debt service is likely to rise to $663 billion this year, the CBO estimated, with total interest payments the debt could reach $10.6 trillion over the next 10 years.
Rising debt burdens pose problems for markets and the economy. Historically, the cost of servicing the national debt of more than 14% of national revenues leads to an “extended period of austerity,” Glenmede said in an earlier note, which could weigh on the economy and corporate earnings.
Stocks and the economy are already on shaky footing as high interest rates tighten financial conditions and increase the risk of a recession. While more economists are warming to the possibility of a soft landing, the New York Fed has priced in a 67% chance that the economy will slip into recession by June 2024.
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