We've been hearing a lot recently about the country's rising deficits and debt, and some people are panicking. Should businesses be panicking? No, and here are three reasons why.
1. There's going to be a reckoning — we just don't know when
According to the Congressional Budget Office, our national debt is currently about 99 percent of GDP and will be 120 percent by 2034. Our total deficit this year is about 7 percent of GDP; by 2034, the CBO predicts that our deficit will be about the same level, but only if the American economy continues to hum along and no ccts of God get in the way. It’s a big “if.”
But the issue isn’t necessarily the size of our debt. It’s the interest we have to pay.
Currently, interest outlays are about 3.1 percent of GDP. But interest spending is projected to nearly double, to one-sixth of overall economic spending, accounting for as much as 4.1 percent of GDP by 2034. These are unprecedented levels, but let’s not forget that this is not as much a budgetary issue as a debt maintenance issue.
As long as the government can maintain these interest payments — even as they grow — the problem gets pushed out further and further into the future. At some point, there has to be a limit. But when will we reach that point? Five years? Twenty years? No one really knows.
U.S. markets are still strong, and will likely remain strong. Treasurys show little sign of losing their demand, given the safe harbor that the American economy provides. There’s no need to panic as long as the government can service the debt. But the money to pay interest has to come from somewhere, otherwise we’ll have........