The U.S. is reaching the level of public debt recorded in Greece during the black days of the financial crisis that led to three bailout programs, recent data reveal.
According to projections, the U.S. debt by 2025 will rise to 132% of the country’s GDP. By comparison, in Greece the debt in 2008-2010 was around 126% of GDP.
The Congressional Budget Office said in March that the U.S. federal debt will grow to more than double the size of the economy in three decades, increasing the risk of a fiscal crisis even though dangers appear low in the near term.
Debt will be equivalent to 202% of gross domestic product by 2051 from 102% this year, the nonpartisan arm of the legislature said in its long-term budget outlook.
Its projection for 195% in 2050 was unchanged from the prior report, whose forecasts ran through that year.
In addition, the U.S. government is swiftly adding trillions of dollars to the debt this year to address the pandemic and the economic devastation our response has triggered.
Greek crisis and austerity
In Greece the crisis reached the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, as well as a small-scale humanitarian crisis.
In all, the Greek economy suffered the longest recession of any advanced mixed economy to date, overtaking the US Great Depression.
As a result, the Greek political system has been upended, social exclusion increased, and hundreds of thousands of well-educated Greeks have left the country.
US economy is not Greece
Few economists predict that the U.S. will follow Greece into the abyss of financial ruin, however.
As Peter Wehner and Ian Tufts say in the recent issue of National Affairs, the notion that mounting debt would yield a sudden, catastrophic crisis does not seem to have been well grounded in contemporary economic realities. Yet the idea that this mounting debt is no trouble at all is implausible as well.
Many say that the fact that the U.S. government can print as many dollars as it needs means that it can never really default on its debt.
Others point to America’s unique role as a safe haven for investment during global economic downturns, which provides a guardrail against financial collapse.
Also, the fact that net interest payments on the debt are expected to remain relatively low for the next decade, as the CBO said, provides a safety valve for the U.S. economy.