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  4. Soaring US debt will 'break' markets at some point if spending isn't reined in, Wharton professor warns

Soaring US debt will 'break' markets at some point if spending isn't reined in, Wharton professor warns

Jennifer Sor   

Soaring US debt will 'break' markets at some point if spending isn't reined in, Wharton professor warns
  • The US debt could eventually "break" markets if it keeps growing at this pace, Joao Gomes warned.
  • The Wharton finance professor said he worried the debt-to-GDP ratio would double in the next 20 years.

The US's soaring debt threatens to break something in the market if the government doesn't pull back its pace of spending soon, according to a Wharton finance professor.

Speaking to CNBC on Thursday, Wharton's Joao Gomes warned of future trouble stemming from the US's $34 trillion debt load, which experts have been watching grow at an alarming clip. Given the government's current pace of spending, the federal debt is growing by around $1 trillion every 100 days, Bank of America analysts said this month.

Public debt accounted for 121% of GDP at the end of 2023, according to data from the US Office of Management and Budget.

"What I'm really worried about is it's going to double its share of GDP in 20 years. That I can't see as us being able to afford," Gomes said.

While the US can afford its debt now, the growing pile could spell trouble years down the line, Gomes said, as investors could grow worried over the rising cost of servicing that debt and dial back holdings of US Treasurys.

That could mean the US may one day no longer be able to rely on countries like China and Japan to buy up debt securities that help fund the government.

"At some point, markets will break," Gomes said.

US debt costs could notch a new record by 2025, Goldman Sachs estimated, with total interest payments on the debt potentially amounting to $10.6 trillion over the next decade, per a separate analysis from the Peter G. Peterson Foundation.

Other market commentators have sounded the alarm on the growing national debt balance as the pace of government spending shows no sign of slowing. Billionaire investor Ray Dalio predicted last year the US would eventually see a debt crisis, which could push US growth to near-zero.




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