Government Debt Exceeds 120% Of GDP: Why Former IMF Economist 'Very Worried' About US Fiscal Crisis

BY Benzinga | ECONOMIC | 02/20/24 06:16 PM EST

Olivier Blanchard, a renowned economist and former chief economist at the International Monetary Fund (IMF), has voiced serious concerns about the potential for a fiscal crisis in the U.S., attributing the risk to the country’s significantly expanded deficits and a political climate resistant to addressing them.

As reported by Bloomberg, Blanchard, who currently serves as an economics professor at the Massachusetts Institute of Technology (MIT), expressed his anxiety over the “very large U.S. budget deficits” and the apparent absence of political resolve to mitigate them.

A Ballooning Debt Burden

Blanchard, one of the world’s most-cited economists, has long advocated for prudent fiscal policies. He stated that the cost of debt remains manageable so long as the interest rates on that debt do not exceed the rate of economic growth.

However, the U.S. government’s interest payments have soared to a staggering $1.026 trillion by the end of 2023, according to the Bureau of Economic Analysis. This figure is twice the amount seen before the COVID-19 pandemic, highlighting a significant escalation in fiscal pressure.

During the same timeframe, the country’s gross domestic product (GDP) has surged only by 20%.

Chart: US Interest Costs Top $1 Trillion In A Parabolic Ascent

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The alarming deficit levels last year pegged at 6.2% of the GDP, have sparked widespread concern about ballooning debt levels.

Data from the Congressional Budget Office reveals that U.S. government debt held by the public reached $26 trillion in 2023, accounting for 97% of the GDP. Moreover, the overall government debt exceeded 120% of GDP, marking an all-time high.

Blanchard’s prognosis for the U.S. is grim, albeit not immediate. “I don't see a big crisis coming, again except for the U.S. where at some point it will happen, whether it's in five years, 10 years I do not know," he remarked.

The implications of a fiscal downturn in the U.S. would not be confined to its borders; the global economy stands at risk of contagion, given the integral role of the U.S. financial system in worldwide economic dynamics.

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