Goldman Sachs Sees U.S. Interest-Cost Surge on Yield, Deficit Rise
There has been a historic expansion in U.S. borrowing during a period of economic growth. In addition, we have seen rising bond yields. Together this will cause a surge in the cost of servicing American debt. This according to Goldman Sachs Group Inc.
“Federal fiscal policy is entering uncharted territory.” “In the past, as the economy strengthens and the debt burden increases, Congress has responded by raising taxes and cutting spending. This time around, the opposite has occurred.”
The average maturity of U.S. debt is almost six years. As a result, rising yields will take some time before they send the interest rate the Treasury pays to borrow above the growth rate of gross domestic product. However, when that does happen, it will send the ratio of debt to GDP, which is already elevated, climbing further from about 77 percent now.
What’s more, debt-to-GDP will probably be higher than 100 percent. This will put the U.S. in a worse fiscal position than the experience of the 1940s or 1990s.”