Committee For A Responsible Budget:
The U.S. national debt is approaching record levels as a share of Gross Domestic Product (GDP) and currently stands at 100% of GDP, while interest costs are surging to new records and budget deficits remain elevated at around 6% of GDP.
High and rising deficits and debt can have many consequences, including that they can put upward pressure on inflation, boost interest rates, slow income growth, reduce fiscal space to respond to needs or emergencies, and weaken our national security. Perhaps most concerning, excessive debt could lead to a fiscal crisis.
A fiscal crisis – sometimes called a sovereign debt crisis – is a sharp economic shock or downturn caused or sparked by high levels of current or expected public borrowing. A fiscal crisis can take many forms but is most likely to occur if investors lose confidence in the Treasury market.
In this paper, we discuss and illustrate what a fiscal crisis might look like. The crisis types we survey – several of which could happen simultaneously – include: