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The US is nearing its $41.1tn debt ceiling, with debt forecast to climb to about $64tn by 2036, according to the Congressional Budget Office.<\/p>\n
But the situation is not yet critical, say economists. The US’s position as the world’s largest economy and the dollar being the world’s reserve currency gives the US a “much longer runway to fiscally misbehave” than other countries, El-Erian says.<\/p>\n
“We’re getting to a point where it’s a flashing yellow light. It’s not a flashing red light,” he says.<\/p>\n
Swanson says other countries have had similar, or higher debt levels.<\/p>\n
While US national debt is 126% compared with the size of the economy, it’s lower than other G7 nations Japan and Italy.<\/p>\n
But investor appetite in lending the US government money through buying bonds is “diminishing”, Swanson warns, creating a “vicious” cycle, requiring the government to offer ever higher returns to keep investors purchasing its debt.<\/p>\n
And higher US borrowing costs inevitably spill over, raising other countries’ borrowing costs too. “What happens in the US never stays in the US,” says El-Erian.<\/p>\n
Charlie Bean, emeritus economics professor at the London School of Economics, says that if the US debt to economy ratio hits a certain point it could start a fire sale of US bonds and lead to financial market turmoil.<\/p>\n
“There probably is a point, but unfortunately we don’t know where it is,” he says. <\/p>\n
“It’s not as if there’s a fixed number that we could say, you know, ‘if it gets to 150 percent, you know, disaster will happen, but we’re OK if we stay at 145’.”<\/p>\n<\/div>\n
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