Presentation
Presentation by Jaeger Nelson, CBO’s Fiscal Studies Unit Chief, at the Hoover Institution’s Fiscal Policy Initiative: The Economic Consequences of U.S. Fiscal Policy Trends.
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Summary
In CBO’s assessment, large and growing federal debt increases long-run interest rates, reduces economic growth, and increases the risk of a fiscal crisis and other adverse outcomes:
- As federal debt grows, interest payments to foreign holders of U.S. debt increase, which lowers national income.
- When the stock of debt is already large, policymakers might feel constrained from using deficit-financed fiscal policy to respond to unforeseen events, promote economic activity, or further other goals.
- As debt and the resulting interest costs continue to grow, greater adjustments to the noninterest components of the budget are required to reduce deficits.