U.S. Government Debt: We Need to Talk

One topic we’ve been discussing at client meetings is the increase in the US Debt. Is it a concern? Can it become one? The current answer is it is not a current concern, but it could become one. Here is Darrell Spence’s, economist at Capital Group, take.

“One question I’ve heard at virtually every client meeting over many years is, “Are you concerned that U.S. government debt is too high?”

My somewhat glib, although honest, answer has always been: “It will become a problem when it becomes a problem.” That is, when foreign and domestic investors decide they no longer want to own U.S. Treasury securities.

It’s difficult to know when that day will arrive, but it has become a problem for other countries when their debt levels grow to be larger than their gross domestic product (GDP). In the past when that occurred, if a country had interest rates that were higher than its economic growth rate, the incremental revenue generated by the economy each year became smaller than the interest payments on the debt, and the debt began to grow all by itself.”

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