VoxTalks Economics S7 Ep44: The US is in a fiscal mess
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Sep 20, 2024 Giancarlo Corsetti, a fiscal policy expert, and Riccardo Trezzi, an analyst of national debt challenges, tackle the alarming rise of U.S. federal debt. They discuss the imminent budget deficits and the stark reality of rising interest payments. Corsetti and Trezzi outline the urgent need for tax hikes and significant government spending cuts to manage this fiscal crisis. They warn against short-term fixes and stress the importance of bipartisan reform to safeguard the economy's future and maintain the dollar's global standing.
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High US Deficit
- The US deficit is historically high, even outside of recessions and wars, reaching 7% of GDP in 2024.
- This is significantly higher than the 50-year average of 4% and primarily driven by increased mandatory spending.
Reasons for High Deficit
- The high US deficit is primarily due to increased mandatory spending (e.g. social security and healthcare programs).
- Historically low tax revenues and increased net interest payments also contribute.
Debt Outlook
- The US federal debt is projected to reach 120% of GDP by 2034, with a continuously rising interest bill.
- This raises concerns about the global willingness to absorb an increasing mass of dollars.