'War economy' angle on debts risks 'creative' solutions: Mike Dolan
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The issue of debt sustainability is a concern in financial markets, particularly in the United States. 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% and then rising to 166% by 2054. Federal Reserve Chair Jerome Powell has stated that U.S. fiscal policy is 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 is partly due to the demand stimulus created by unchecked deficits. The long-term debt projections are based on relatively modest expectations for borrowing costs, but the problem lies in the debt accumulated in the interim. The International Monetary Fund doesn't see the overall annual U.S. deficit back below 6% of GDP for the next five years. The justification for fiscal largesse has taken on a 'war economy' rationale, with heavy spending seen as necessary to address existential threats and geopolitical rivalry. French President Emmanuel Macron has also highlighted the risk of Europe's demise and called for an expansion of the European Central Bank's mandate. In conservative quarters, there are calls to erode central bank independence. The imperatives of fiscal retrenchment and electoral cycles may lead to a reliance on monetary policy to keep the economy stable.

#DebtSustainability #FiscalPolicy #PublicDebt #InterestRates #Inflation #MonetaryPolicy

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