Our debt is so miserable It’s now similar to the student loan crisis



According to Jared Bernstein, who chaired President Joe Biden’s Economic Advisory Council, if the US continues its current trajectory, it will create a debt shock if it starts to look like an unsustainable student loan.

in New York Times Oned On Wednesday he acknowledged that he was once a longtime pigeon when it comes to budget deficits, claiming that austerity often does more harm than good.

“Now. I’m in the Hawks, like many other longtime pigeons, because the mathematics in our country’s budget has become even more dangerous,” writes Bernstein.

In particular, he pointed out the mathematics of economic growth and debt interest. Citing economist Olivier Blanchard’s work, governments can maintain a fiscal deficit if GDP grows faster than debt rates.

That’s where the analogy of student debt comes in. College graduates can keep up with monthly payments, as long as they don’t borrow too much, and their income is rising faster than their loan invoices.

“But on the contrary, if they borrow on the pattern — and if their student loan debt starts to grow faster than their income, they can get into trouble right away,” Bernstein said. “And that’s where our country is now.”

Considering that, it’s an ominous warning The rate of late is rising sharply Among student loan borrowers, as a result Seized wages Your credit score will plummet.

That’s after the number of Americans with debt from federal student loans more than doubled between 2000 and 2020 to 21 million and 45 million. Brookings Facilities. Meanwhile, the total has been paying more than four times the amount during that time, from $387 billion to $1.8 trillion, growing faster than any other form of household debt.

With regard to federal finances, US debt costs were more benign than income. Since the early 2000s, the 10-year Treasury inflation-adjusted yields have been below 10-year forecasts for economic growth.

But that has changed recently, with the two now converging above 2%, some of which are part of government spending during the pandemic and higher inflation, forcing the Federal Reserve to actively raise interest rates, leading to higher dragged yields.

“It’s a potential game changer in debt sustainability,” Bernstein said.

He did not mention the Biden administration’s addition of trillions to its debt with the vast spending that surprised in inflation.

Instead, he pointed to President Donald Trump’s economic policies, his trade war and the tax and spending bills he signed into law last week.

High tariff charges reduce economic growth while improving inflation and interest rates. At the same time, he added that tax cuts are likely to increase debt and increase interest costs to serve it.

To avoid the debt shock that forces the government to sharply cut spending or raise taxes, Bernstein proposed a preliminary decision that would bind the “breakgrass moment” and fiscal response.

The US is already more concerned with debt than it spends on Medicare and defense. These interest payments will reach $1 trillion next year, and will only track Social Security as the government’s biggest spending. According to Responsible Federal Budget Committee, Think Tank.

Meanwhile, Trump’s tax cuts and spending are expected to add a total over the next few years. Debt to GDP ratio It quickly surpasses the postwar II record.

“But its economy remains unsustainable. In a strong economy, the main deficit is much larger than usual, with debt-GDP ratios approaching post-war highs, and much higher real interest rates spend GDP debt and interest costs on a much steeper trajectory than it appears to be the final cycle.

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