3 charts that show why the US should stop ignoring its debt problem

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Economy

3 charts that show why the US should stop ignoring its debt problem

  • In June, the Congressional Budget Office estimated federal debt held by the public will rise from 78 percent of GDP at the end of this year to 96 percent in 2028.
  • The IMF warned that now is the time for investors and policymakers to pay attention to growing debt, singling out the United States.

By most measures, the U.S. economic outlook is bright. GDP (gross domestic product) growth could exceed 4 percent in the second quarter, unemployment is at decade-lows and wages are ticking up.

But one figure paints a darker picture: U.S. national debt.

Gross federal debt stands at a massive $21.2 trillion. Economists and policymakers are increasingly urging the U.S. government to address the debt now while the economy is on solid footing and before the next crisis hits.

"Even if you think that public debt just doesn't matter to economic outcomes, the thing you have to admit is that when we hit a downturn, governments are less likely to take significant steps if the debt is as high as ours is now," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, to CNBC via telephone.

CNBC | Giorgio Tonella

In June, the Congressional Budget Office estimated federal debt held by the public will rise from 78 percent of GDP at the end of this year to 96 percent in 2028. That would mark the highest percentage since 1946. The report warned such high and rising debt due to higher spending and lower revenues would have "serious negative consequences for the budget and the nation."

"As debt gets higher, it becomes harder and harder to stimulate the economy to generate growth," said Sonja Gibbs, senior director of the Capital Markets and Emerging Markets Policy Department of the Institute of International Finance, to CNBC via telephone.

CNBC | Giorgio Tonella

The United States is, of course, not the only country with sky-high debt levels. In April, the International Monetary Fund (IMF) sounded the alarm on global debt, saying debt-to-GDP ratios in advanced economies are at levels not seen since World War II.

Gibbs said it has been easy for investors to ignore public debt in the short term.

"It's a problem that people can sort of close their eyes and say 'that's not affecting my opportunity set of investments here and now'," she said.

CNBC | Giorgio Tonella

But the IMF warned that now is the time for investors and policymakers to pay attention to growing debt, singling out the United States. The Fund said the revised tax code and spending agreements will mean the U.S. is the only advanced economy where the debt-to-GDP ratio will increase over the next five years.