WASHINGTON — Economists warned U.S. lawmakers that the country is heading toward an unsustainable debt path that could trigger financial shocks across the global economy, raising concerns that rising deficits in the United States may push up global interest rates and affect emerging markets such as India.
During a Senate Finance subcommittee hearing on fiscal responsibility and economic growth Wednesday, Senator Ron Johnson said the nation’s debt trajectory has reached alarming levels.
“Soon it will hit and surpass $39 trillion,” Johnson said, adding that within a decade the national debt will “almost certainly exceed $60 trillion.”
Johnson argued that Washington has failed to confront the growing fiscal imbalance and said federal spending surged during the COVID-19 pandemic without returning to earlier levels.
“We still haven’t taken the first step in solving a problem, which is to admit we have one,” he told the panel.
Senator Tina Smith, the ranking member of the subcommittee, agreed that the country faces a dangerous fiscal outlook but said both spending increases and declining revenues have contributed to the growing deficit.
“Deficits aren’t caused just by spending that’s too high. They are just as contingent on the revenue side of the ledger,” Smith said, describing the latest budget outlook as “a grim picture.”
Phillip Swagel, director of the Congressional Budget Office, told lawmakers that the federal government’s fiscal path is historically unusual and unsustainable.
According to Congressional Budget Office projections, federal debt held by the public is expected to rise from about 99 percent of gross domestic product in 2025 to 120 percent by 2036 and eventually reach 175 percent by 2056.
“Our projections continue to indicate that the trajectory for budget deficits is not sustainable,” Swagel said.
He added that stronger economic growth could help reduce deficits but would not resolve the problem without policy changes.
“Policy action is needed to reduce the budget deficit,” he said.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that the growing debt burden poses risks beyond economics.
“Our national debt is the issue that everybody knows is a problem, but very few people are willing to do anything about,” she told senators.
She said the rising debt could weaken Washington’s ability to respond to emergencies and global challenges.
“Our ability to respond to emergencies and major crises and our role in the world” could be affected if current trends continue, she said.
Martha Gimbel, executive director of the Budget Lab at Yale, said the effects of rising government debt are already being felt by Americans through higher borrowing costs.
Research cited in her testimony shows that rising government deficits have pushed up long-term Treasury yields. For a typical 30-year mortgage, she said the increase in borrowing costs amounts to about $2,500 per year, or roughly $76,000 over the life of the loan.
Economists at the hearing also warned that a full-scale fiscal crisis in the United States could send shockwaves through global financial markets.
Swagel said such a crisis could lead to “sharply higher interest rates, a weaker dollar, lower investment, lower consumer spending, fewer jobs.”
Because U.S. Treasury securities underpin the global financial system, higher American borrowing costs often translate into tighter financial conditions worldwide. Analysts say rising U.S. yields can influence capital flows, currencies and borrowing costs in emerging markets.
For countries such as India, shifts in U.S. interest rates and Treasury yields are closely monitored by policymakers and investors because they can affect global capital flows, exchange rates and financing conditions across developing economies. (Source: IANS)
