Simulation shows US debt on unsustainable path

The Congressional Budget Office (CBO) in the US has warned that the US federal government debt is on track to reach levels higher than those of World War II. The latest estimates from the Congressional Budget Office (CBO) in the US have warned that the US federal government debt is on track to reach 116% of GDP by 2034, higher than those of World War II. But there are fears that the real picture could be much worse. The CBO forecasts, released earlier this year, are supported by positive assumptions on everything from tax revenues to defense spending and interest rates. However, when the market’s current view on interest rates is added, the debt-to-GDP ratio rises to 123% in 2034. This ratio increases even further when the view that former US President Donald Trump’s tax cuts remain constant is added. Bloomberg Economics ran one million simulations to assess the fragility of the debt outlook. In 88% of simulations, the results showed that the debt-to-GDP ratio is on an unsustainable path of increasing over the next decade. The Biden administration says its budget, which includes a series of tax hikes on corporations and wealthy Americans, will ensure fiscal sustainability and manageable debt servicing costs, but it will need to be approved by a bipartisan Congress. Republicans, who control the House of Representatives, are calling for deep spending cuts to reduce the growing deficit, though they have not said exactly where they could be made.