The US debt is growing at an alarming rate, and Congress must act immediately to reduce it. Wharton professor Joao Gomes warned that the markets would begin to tumble in 2025 unless the government quickly changes its budgetary trajectory.
The stimulus-heavy budget plan that the UK government proposed in 2022 caused domestic yields to skyrocket, mortgage rates to rise, and the pound to crash to a record low; he is taking a page out of that crisis’s playbook.
In November 2023, investors in the United States had a taste of what this may entail when rates on Treasury bonds collapsed to 5%. One reason given was the excessive supply of Treasury bonds and the ever-increasing US debt.
Massive expenditure and quickly increasing debt-servicing expenses have driven the national debt to an all-time high of $34 trillion. Estimates released last month by the Bank of America put the United States’ debt load at $1 trillion every 100 days.
With interest rates on the rise, the possibility of a default crisis in the United States occurring this century is becoming more likely. According to a Penn Wharton Budget Model from last year, the nation has 20 years to fix this problem before further tax increases or expenditure cutbacks are useless.
Since the 2017 tax cuts are scheduled to expire next year unless Congress decides to prolong them, Gomes anticipates that they will cause a great deal of controversy in the next year. The Trump administration is responsible for implementing the change that reduces corporate taxes.
Whoever wins the presidency in November will have a significant impact on this program’s future since neither contender has provided concrete ideas for how to address the budget deficit.
Some, however, have cautioned that taxation alone would not provide a satisfactory answer. Even though they would have to go up for people of all income levels, Maya MacGuineas said last year that Republicans and Democrats must be prepared to eliminate expenditure programs.
Wall Street heavyweights like Jamie Dimon and Ken Griffin have also warned about an impending catastrophe, joining Gomes in criticizing the US borrowing amount.
