U.S. Federal Debt Nears Post-WWII Highs, Risking Debt Crisis Without Fiscal Reform
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U.S. federal debt as a percentage of GDP has risen to nearly 100%, its highest level since the 1940s, and is projected to reach 115% over the next decade.
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Citi economists don't see evidence that rising Treasury supply is the main driver of yields. Rather, the economy and expectations of higher rates are bigger factors.
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Cutting spending on entitlements and defense is likely needed to meaningfully reduce the debt, but neither party appears willing to do so.
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A full-blown debt crisis could look like the recent volatility in the UK gilt market, but swift intervention can help manage it.
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While yields have pulled back recently, the UK crisis serves as a warning for the U.S. and other countries with high debt levels.