Assessing the risks and costs of the rising US federal debt

The U.S. federal debt stands close to a historically high 100% of GDP and is projected to rise steadily. Warnings that rising debt will lead to fiscal crisis and economic catastrophe are widespread. In a new paper, Brookings scholars Wendy Edelberg, director of the Hamilton Project; Ben Harris, vice president and director of Economic Studies, and Louise Sheiner, Robert S. Kerr Senior Fellow and policy director of the Hutchins Center on Fiscal & Monetary Policy, examine the channels through which the federal debt affects the economy and assess the likelihood of a fiscal crisis.

They argue that, under realistic (but still dire) scenarios, U.S. government debt appears unlikely to spark a fiscal crisis over the next several decades—although political missteps could increase that risk. Instead, increases in federal debt will likely manifest as a slow and steady erosion of our capital stock and national wealth that will ultimately impair living standards.

On February 12, the authors presented their findings, which were then discussed by a panel that included Richard Clarida, professor at Columbia University and former vice chair of the Federal Reserve; Jason Furman, professor at the Harvard Kennedy School and former chair of the Council of Economic Advisers; and Matthew Rutherford, principal at Bracebridge Capital and former assistant Treasury secretary for financial markets.

Viewers joined the conversation and asked questions in advance by emailing [email protected] and on X @BrookingsEcon using the hashtag #USdebt.