Bank of America CEO Brian Moynihan and Joao Gomes, vice dean of Wharton, warn of an impending fiscal crisis due to escalating US national debt. They call for prioritizing debt payment, tightening fiscal policies, and a fundamental change in government budget management.
The Congressional Budget Office (CBO) predicts public debt could reach 166% of the GDP by 2054, growing to an estimated $141.1 trillion from the current $34 trillion. Factors contributing to this projection include unsustainable economic policies, increasing mandatory spending, and the retirement of the baby-boom generation which puts added pressure on Social Security and Medicare.
The CBO also indicates the ratio of debt to GDP will surpass the previous World War II record by 2029. As a result, economic progress may be limited. They suggest proactive strategies, such as economic reforms, restructuring public debt, or altering fiscal policies to manage the growing fiscal burden.
Rising debt could also cause the US dollar to lose its status as the principal global reserve currency. This would decrease America’s economic influence, increase market volatility, and potentially lead to economic contractions.
Forecasting impending debt crisis, suggested remedies
Additionally, this scenario could limit the country’s ability to respond to future financial crises or make necessary investments.
The U.S. Government Accountability Office (GAO) recommends that Congress make difficult decisions to mitigate the primary contributors to the federal debt. The GAO suggests addressing government programs related to healthcare, social security, and the overall tax system. They further stress the need for comprehensive reform, bipartisan support, and an understanding of potential trade-offs.
Lastly, Gomes proposes two solutions: boosting growth and reducing spending. Encouraging entrepreneurship, incentivizing research and development, and targeting sectors with high growth potential can help with growth. Reducing spending could be achieved through streamlining government services, implementing cost-saving measures, and budget cuts on non-critical areas. However, he emphasizes strong political will and committed implementation are needed in order to prevent a crisis.
