Thanks CBO for putting it in print: "Harmful Effects Of Large And Growing Debt How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to pay U.S. debt obligations, making it more difficult or more expensive for the government to borrow money. Moreover, even before that point was reached, the high and rising amount of debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget: Increased borrowing by the federal government would eventually reduce private investment in productive capital, because the portion of total savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income in the long run than would otherwise be the case. Despite those reductions, however, the continued growth of productivity would make real (inflation-adjusted) output and income per person higher in the future than they are now. Federal spending on interest payments would rise, thus requiring larger changes in tax and spending policies to achieve any chosen targets for budget deficits and debt. The government would have less flexibility to use tax and spending policies to respond to unexpected challenges, such as economic downturns or wars. The risk of a fiscal crisis—in which investors demanded very high interest rates to finance the government’s borrowing needs—would increase."
Posted on: Fri, 20 Sep 2013 16:10:50 +0000
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