US Current Debt/Deficit Sustainability Is Dangerous

Trillion-dollar deficits are sustainable for now, unfortunately

John H. Makin

The year-end fiscal cliff is the current hot economic topic, and many policymakers and pundits seem to think that forcing us over the cliff is the best way to force decisive action to reduce US debt. However, this tactic will not work in the United States because borrowing costs are so low. In countries like Greece, Spain, and Portugal, borrowing costs are much higher, and debt crises have emerged. However, with its very low borrowing costs, the United States is not in immediate danger of a crippling crisis. What is needed are gradual reductions in US primary deficits that result in a stable ratio of debt to GDP by 2015.

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Though the US deficit is in the trillions of dollars, the United States is not in immediate danger of a financial crisis on the level of Greece's because its borrowing costs are so low.
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