US federal debt to exceed 100% of GDP

US federal debt to exceed 100% of GDP

The United States federal debt may exceed 100% of GDP from the current 76% in ten years, according to Goldman Sachs.

Sachs's economist team wrote that the US "Federal fiscal policy is entering uncharted territory" in its report "what's wrong with Fiscal Policy?" published on February 18.

It says that as a result of this historic expansion in U.S. borrowing during a period of economic growth, alongside rising bond yields, Goldman predicts a surge in the cost of servicing American debt, and goes so far as to warn that the current US fiscal trajectory would lead to catastrophe: "the continued growth of public debt raises eventual sustainability questions if left unchecked."

It expects the US budget deficit to widen over the next few years, as a result of prior imbalances and recently enacted policies, which should lead to a federal debt/GDP ratio of around 85% of GDP by 2021.

"If Congress continues to extend existing policies, including the recently enacted tax and spending legislation, federal debt will slightly exceed 100% of GDP and interest expense will rise to around 3.5% of GDP, putting the US in a worse fiscal position than the experience of the 1940s or 1990s," Goldman Sachs wrote.

Now "fiscal policy appears unusually disconnected from the economic cycle," the report says.