If current laws remain unchanged, the U.S. budget deficit will widen at a rapid pace and reach levels only exceeded during World War II and the darkest hours of the coronavirus pandemic, the Congressional Budget Office said in a new report released Wednesday.
Persistent deficits will cause the debt held by the public to jump from 98% of U.S. gross domestic product to 181% by 2053, the report said. The likelihood of a fiscal crisis would increase as federal debt continues to rise, because mounting debt could erode confidence in the U.S. government’s fiscal position.
“Such high and rising debt would slow economic growth, push up interest rates to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook,” the CBO said.
Interest on the Federal debt will hit 6.7% of GDP by 2053, the report said.
Under the CBO’s projections, government spending will continue to expand until it grows to just under 30% of GDP. Revenue won’t match the spending, reaching only 19.1% of GDP.
The agency forecast that yield on the 10-year Treasury notes
will stay at around 4% and will stay elevated over the next 30 years. That contradicts a recent paper by the New York Fed that argued that yields would return to low levels closer to 2% seen from 2008-2020.
The CBO says that the U.S. economy will only be able to grow at a sub-2% rate over the next 30 years. That’s slower “potential growth” than has been seen, on average, over the past three decades.
That anemic growth is explained by slower growth in the potential labor force and in potential labor force productivity.
That is bad news for households as high productivity is a key to higher incomes for American workers.