US Facing Risk of Debt Spiral as Deficits Stay High and Options to Control Debt Seem Limited
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U.S. budget deficit hit $1.7 trillion in 2022, close to 7% of GDP. IMF forecasts it will stay around that level.
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Government debt has tripled since the 1960s to around 120% of GDP. Investors are demanding higher yields on U.S. Treasuries.
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Higher interest costs could create a debt spiral. Options to control debt - higher growth, spending cuts/tax hikes, or financial repression - seem limited.
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Central banks prioritizing inflation over supporting government funding needs by keeping rates low.
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Until debt sustainability challenges are addressed, investors are right to be concerned about a potential debt trap.