US Federal Debt to reach 106% of GDP by 2039

US Federal Debt to reach 106% of GDP by 2039

Published time: July 16, 2014 10:29

America’s public debt will rise to 106 percent of GDP in the next 25 years, a level seen just once in US history – just after World War II, the US Congressional Budget Office (CBO) warned.

US debt has skyrocketed to over $17 trillion, and is now about 74 percent of total gross domestic product, the CBO said on Tuesday. The only other time it was this high was during World War II. During the the financial crisis of 2008, it was only half of what it is now.

“The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices,” the CBO said in the report.

Between 2015 and 2020 the public debt is expected to hover between 72 and 74 percent, but then begin to bulge after. By the end of 2024 the CBO predicts it will be 78 percent.

Increasing debt will put a squeeze on long-term economic growth, which will increase the risk of a fiscal crisis.

“Unless substantial changes are made to the major health-care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past,” the report says.

In the previous long-term budget outlook, the CBO reported public debt was 73 percent of GDP, and that by 2039 debt would reach 102 percent of GDP.

Worldwide, the US has the 11th highest debt to GDP ratio. Japan, the third largest economy, has the biggest debt as a percentage to GDP, with 180 percent. Greece has about 150 percent, and Italy has 109 percent. However, this ranking only takes into account overall ratios, and not the different levels of taxes in each individual country. In 2012, Germany, the fourth largest economy, had more than 80 percent of public debt to GDP.

If debt continues to increase, the likelihood of a fiscal crisis in the US increases, because investors will be unwilling to continue buying government debt. Or, if they continue to shell out loans, they will demand higher interest rates.

The CBO is directed by economist Douglas Elmendorf, who works closely with the Speaker of the House of Representatives John Boehner.

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