Oddbean

Column-'War economy' angle on debts risks 'creative' solutions: Mike Dolan ========== Big public debts typically stem from big economic and political junctures that require government to spend big - but reining them back risks 'creative' solutions markets may struggle to price. The Congressional Budget Office projects a 17 percentage point jump in the U.S. public debt-to-GDP ratio over the next 10 years to 116% - twice the average level of the past 20 years - and then rising even further to 166% by 2054. Federal Reserve Chair Jerome Powell said U.S. fiscal policy was on an 'unsustainable path'. The average interest cost on the U.S. public debt has more than doubled since April 2021 to 3.23% - the highest in 14 years. The persistence of brisk growth and above-target inflation despite monetary tightening is, for many economists, at least partly down to the demand stimulus created by those unchecked deficits. The CBO's long-term debt projections are explosive, based on relatively modest expectations for borrowing costs ahead. The International Monetary Fund doesn't see the overall annual U.S. deficit back below 6% of GDP for the next five years at least. Justification for the fiscal largesse has started to take on a different tone, with an unnamed U.S. Treasury official suggesting a 'war economy' rationale for heavy spending. The official argued that existential threats to U.S. democracy and institutions required the outsize public spend to bolster the economy longer-term and to garner internal and external support for American status quo and its position in the world. French President Emmanuel Macron made a similar point about Europe, claiming there is a risk Europe might die. The central bank may play a role in ensuring debt sustainability and growth. The opinions expressed in the article are those of the author, Mike Dolan, a columnist for Reuters. #PublicDebt #FiscalPolicy #DebtSustainability #EconomicGrowth #FederalReserve #CongressionalBudgetOffice #InterestRates #Inflation #InternationalMonetaryFund #UsTreasury #CentralBank https://www.investing.com/news/economy/columnwar-economy-angle-on-debts-risks-creative-solutions-mike-dolan-3441149