CBO Sees Debt Reaching an Ominous Threshold
Debt held by the public will reach 90 percent of
These projections are significant for another reason: Economists Carmen Reinhart and Kenneth Rogoff have found that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” The explanation, speculate Reinhart and Rogoff, is that “as debt levels rise towards historical limits, risk premia begin to rise sharply, facing highly indebted governments with difficult tradeoffs. Even countries that are committed to fully repaying their debts are forced to dramatically tighten fiscal policy in order to appear credible to investors and thereby reduce risk premia.”
