Even Progressives Now Worry About the Federal Debt

 https://dnyuz.com/2025/01/30/even-progressives-now-worry-about-the-federal-debt/

The main concern, says Danny Yagan, an economist at the University of California, Berkeley, is a tipping point that forces a sudden and catastrophic adjustment.  He cites a 1998 paper that likened the deficit not to a long term drag on growth — such as a termite infestation that gradually erodes the foundations of a house — but rather to a risky gamble, like not buying home insurance. If the fiscal house catches fire, perhaps because investors lose confidence in the government’s ability to pay back its debt, the options are not good: They include defaulting, forcing banks to hold more Treasuries, running inflation high so the debt recedes, or cramming down spending, all of which could cause a recession.  The reason that gamble looks increasingly risky is that large deficits could be starting to push up interest rates (“r” in economics lingo) while growth (“g”) remains steady. The Congressional Budget Office forecasts that debt will continue to increase, which forces higher interest payments, creating an upward spiral.  “Under C.B.O.’s projections, that’s going to slowly increase r relative to g until about 2040, when r is greater than g, and then debt starts to explode on its own,” said Dr. Yagan, who served in the Biden administration’s Office of Management and Budget and co-founded the Budget Lab at Yale. “That’s what people are worried about.”