Veronique de Rugy in dailyherald: Why something needs to change regarding America's debt policies, not just a lifting of the ceiling.
The debt-ceiling standoff has people concerned about what will happen if the U.S. defaults on its debt. I certainly hope both sides will come together to avoid this outcome. But it is still worth reminding everyone how incredibly precarious the status quo is, and why something needs to change.
This is a lot of borrowing. In theory, it might not lead to a debt crisis if the government can find people to buy the debt at low rates or Congress develops a serious plan to repay it. Yet even assuming the best-case scenario, borrowing like this has a cost. Debt is a drag on economic growth, which means less tax revenue to pay it off.
by signing up you agree to our terms of service Research confirms the impact of debt on long-term interest rates. Every percentage point increase in the debt-to-GDP ratio is associated with an increase of 3 basis points of the long-term real interest rate. So, if the debt ratio rises by 100% over the next 30 years, it will put upward pressure on interest rates of about 3 percentage points.
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