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Posted by / 10-Apr-2019 12:47

Such a crisis would…probably have a very significant negative impact on the country. Publicly held debt in the United States will exceed 76 percent of gross domestic product (GDP) in 2013, and chronic deficits are projected to push U. debt to 87 percent of the economy in 10 years.[1] Debt is projected to grow even more rapidly after 2023.

Recent economic research, especially the work of Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff, confirms that federal debt at such high levels puts the United States at risk for a number of harmful economic consequences, including slower economic growth, a weakened ability to respond to unexpected challenges, and quite possibly a debt-driven financial crisis.[2] The federal government is quickly exhausting its ability to manage its bills, with debt having already reached the statutory debt ceiling. debt limit, President Barack Obama and Congress agreed to raise the debt ceiling by .1 trillion in exchange for specified spending reductions over 10 years.

Reinhart, Reinhart, and Rogoff’s recent work on the impact of high public debt on growth and interest rates is based on this groundbreaking dataset.

The economists follow a descriptive approach, comparing economic variables for different countries as averages for debt-to-GDP ratios below and above 90 percent of GDP.

Reinhart, Reinhart, and Rogoff discovered that the average growth rate in countries experiencing public debt overhang is 1.2 percentage points lower than in periods with debt below 90 percent of GDP.[13] These public debt overhang episodes last an average of about 23 years. publicly held debt is projected to reach nearly 90 percent of GDP that year.

A weaker economy in turn would provide fewer career opportunities and lower wages and salaries for workers.

However, higher interest rates do not always materialize in countries suffering a debt overhang.

According to Reinhart, Reinhart, and Rogoff, in 11 of the 26 cases where public debt was above 90 percent of GDP, real interest rates were either lower, or about the same, as during years of lower debt ratios.

Higher interest rates on government bonds also lead to higher rates for other domestic investments, including mortgages, credit cards, consumer loans, and business loans.

Higher interest rates on mortgages, car loans, and other loans would make it more costly for families to borrow money.

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Debt overhang reduces economic growth significantly and for a prolonged period of time in three main ways. Or, interest rates may rise simply because the government is attempting to sell more debt than private bondholders are willing to buy at current prices.