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The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk

  • Henning Bohn

The rapidly growing federal government debt has become a concern for policy makers and the public. Yet the U.S. government has seemingly unbounded access to credit at low interest rates. Historically, Treasury yields have been below the growth rate of the economy. The paper examines the ramifications of debt financing at low interest rates. Given the short maturity of U.S. public debt – over $2.5 trillion maturing in 2010 – investor expectations are critical. Excessive debts justify reasonable doubts about solvency and monetary stability and thus undermine a financing strategy built on the perception that U.S. debt is safe.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3079.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3079
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