The Financial Times

Deficit disorder
The Financial Times

The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years. Even on its relatively optimistic assumptions for economic growth, moreover, the CBO predicts national debt will double to 82 per cent of GDP in the next decade – a level not seen since the second world war. This would push the US close to the chronic debt levels seen in Japan and Italy.

Once merely a worthy subject of concern, America’s fiscal outlook has rapidly become the object of widespread alarm. “Aside from weapons of mass destruction and terrorism, America’s fiscal situation is the most dangerous challenge facing the country,” says Mr Gregg. “Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America’s global leadership role.”

Even on its existing course, many economists believe the US is heading for a debt crisis. The most pressing anxiety is over the declining confidence of foreign investors, whose support for the dollar has helped fund America’s growing trade deficits over the last decade. In the last three months, the yield on the 10-year Treasury bond has almost doubled from just above 2 per cent to almost 4 per cent.