Goldman now sees US debt-cost ratio rising into danger zone
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Goldman Sachs Group Inc. has updated its longer-term US fiscal outlook, projecting a key metric of debt sustainability to reach historically extreme levels. The bank's economists Manuel Abecasis and David Mericle note that higher expected future interest rates have substantially worsened the trajectories of the debt-to-GDP ratio and real interest expense as a share of gross domestic product. Treasury Secretary Janet Yellen has referenced net inflation-adjusted interest payments as a proportion of GDP as her main metric of debt sustainability. Goldman's updated projections have that ratio climbing steadily to 2.3% by 2034, compared to the bank's previous prediction of 1.5%. The bank also forecasts the US debt-to-GDP ratio to reach 130% by 2034, up from the current 98%. The primary fiscal deficit, not accounting for interest costs on the debt, is now 5% greater as a share of US GDP than during times of full employment. Goldman Sachs economists highlight the need for a fiscal surplus to stabilize the debt-to-GDP ratio, but note the lack of political momentum for deficit reduction.

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