Today's Debt Ceiling Is Tomorrow's Dreaded Debt Bomb
The odds are rising that the US may soon have to borrow just to meet its growing interest payments.
Will the US be able to meets its debt obligations?
Photographer: William Thomas Cain/Getty Images
As disconcerting as the US’s current debt situation is, the outlook is even worse. When the bi-partisan Congressional Budget Office updated its forecasts last week, it estimated that debt held by the public will climb to $46 trillion by 2033 from $31 trillion currently. This puts the country one step closer to the dreaded “debt bomb“ scenario, which would make today’s battle over whether to raise the $31 trillion debt ceiling look quaint in comparison.
In short, a debt bomb occurs when a country’s borrowings get so large that it has to borrow just to service the debt and meet interest payments. That, in theory, causes interest rates to rise, forcing a government to accumulate yet even more debt. In a sense, a debt bomb is a death spiral for a country. There are ways out, but they’re all painful. Once this pernicious cycle has started, the only way it can be arrested is by a sharp increase in taxes, an equally sharp decrease in spending or a default. The third scenario is unthinkable for the US, which oversees the world’s primary reserve currency. Congress would undoubtedly take the steps necessary to prevent a default, but a rapid rise in taxes and collapse in spending would almost certainly throw the country into a severe recession – or worse.