Such high and rising debt would have significant negative consequences, both for the economy and for the federal budget, including these:
- As interest rates continue to rise toward more typical levels, federal spending on interest payments would increase substantially;
- Because federal borrowing reduces national saving over time, the nation’s capital stock ultimately would be smaller, and productivity and total wages would be lower than would be the case if the debt was smaller;
- Lawmakers would have less flexibility than otherwise to use tax and spending policies to respond to unexpected challenges; and
- The likelihood of a fiscal crisis in the United States would increase. Specifically, the risk would rise of investors’ being unwilling to finance the government’s borrowing unless they were compensated with very high interest rates. If that occurred, interest rates on federal debt would rise suddenly and sharply relative to rates of return on other assets.