{"id":334134,"date":"2025-12-07T01:20:07","date_gmt":"2025-12-07T01:20:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/334134\/"},"modified":"2025-12-07T01:20:07","modified_gmt":"2025-12-07T01:20:07","slug":"us-debt-crisis-most-likely-fix-is-severe-austerity-triggered-by-a-fiscal-calamity","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/334134\/","title":{"rendered":"US debt crisis: Most likely fix is severe austerity triggered by a fiscal calamity"},"content":{"rendered":"

One way or another, U.S. debt will stop expanding unsustainably, but the most likely outcome is also among the most painful, according to Jeffrey Frankel, a Harvard professor and former\u00a0member of President Bill Clinton\u2019s Council of Economic Advisers.<\/p>\n

Publicly held debt is already at 99% of GDP and is on track to hit 107% by 2029, breaking the record set after the end of World War II. Debt service alone is more than $11 billion a week<\/a>, or 15% of federal spending in the current fiscal year.<\/p>\n

In a Project Syndicate op-ed<\/a> last week, Frankel went down the list of possible debt solutions: faster economic growth, lower interest rates, default, inflation, financial repression, and fiscal austerity.\u00a0<\/p>\n

While faster growth is the most appealing option, it\u2019s not coming to the rescue due to the shrinking labor force, he said. AI will boost productivity, but not as much as would be needed to rein in U.S. debt.<\/p>\n

Frankel also said the previous era of low rates was a historic anomaly that\u2019s not coming back, and default isn\u2019t plausible given already-growing doubts about Treasury bonds as a safe asset, especially after President Donald Trump\u2019s \u201cLiberation Day\u201d tariff shocker.<\/p>\n

Relying on inflation to shrink the real value of U.S. debt would be just as bad as a default, and financial repression would require the federal government to essentially force banks to buy bonds with artificially low yields, he explained.<\/p>\n

\u201cThere is one possibility left: severe fiscal austerity,\u201d Frankel added.<\/p>\n

How severe? A sustainable U.S. debt trajectory would entail elimination of nearly all defense spending or almost all non-defense\u00a0discretionary outlays, he estimated.<\/p>\n

For the foreseeable future, Democrats are unlikely to slash top programs, while Republicans are likely to use any fiscal breathing room to push for more tax cuts, Frankel said.<\/p>\n

\u201cEventually, in the\u00a0unforeseeable future, austerity may be the most likely of the six possible\u00a0outcomes,\u201d he warned. \u201cUnfortunately, it will probably come only after a severe fiscal crisis. The longer it takes for that reckoning to arrive, the more radical the adjustment will need to be.\u201d<\/p>\n

The austerity forecast echoes an earlier note from Oxford Economics, which said the expected insolvency of the Social Security and Medicare trust funds by 2034 will serve as a catalyst for fiscal reform<\/a>.<\/p>\n

In Oxford\u2019s view, lawmakers will seek to prevent a fiscal crisis in the form of a precipitous drop in demand for Treasury bonds, sending rates soaring.<\/p>\n

But that\u2019s only after lawmakers try to take the more politically expedient path by allowing Social Security and Medicare to tap general revenue that funds other parts of the federal government.<\/p>\n

\u201cHowever, unfavorable fiscal news of this sort could trigger a negative reaction in the US bond market, which would view this as a capitulation on one of the last major political openings for reforms,\u201d Bernard Yaros, lead U.S. economist at Oxford Economics, wrote. \u201cA sharp upward repricing of the term premium for longer-dated bonds could force Congress back into a reform mindset.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"One way or another, U.S. debt will stop expanding unsustainably, but the most likely outcome is also among…\n","protected":false},"author":2,"featured_media":334135,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27],"tags":[28,3055,101011,2928],"class_list":{"0":"post-334134","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-business","9":"tag-debt","10":"tag-debt-crisis","11":"tag-national-debt"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/334134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=334134"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/334134\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/334135"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=334134"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=334134"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=334134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}