What are the effects of a high national debt?
The effects of the national debt on the economy are far from abstract. High levels of federal debt will cause:
Higher costs of living: Large amounts of debt mean higher interest rates on everything from credit cards to mortgage loans.
Slower wage growth: In normal economic times, every dollar an investor spends buying government debt is a dollar not invested elsewhere in the economy. That is, high debt “crowds out” more productive investments, leading to slower economic growth and lower wages.
Generational inequality: By not making responsible debt choices, we are placing higher debt burdens on our children and threatening their standard of living and retirement.
Reduced fiscal flexibility: Our debt levels doubled between 2008 and 2013 from 35 percent of GDP to over 70 percent, a result of and in response to the Great Recession. We can’t afford another recession. With an already high debt, the government has less room to respond to future crises such as international events or economic downturns.
Fiscal crises: Unchecked debt growth could eventually lead to a fiscal crisis, as recently occurred across Europe. At that point, investors in U.S. debt will demand higher returns, driving up interest payments, and leading to a debt situation spiraling out of control.