As the US national debt passes $33 trillion and a government shutdown looms, it could sour sentiment and deal a blow to an economy already dealing with high gas prices, autoworker strikes and elevated inflation -- with some saying it could even increase the possibility of a recession, a media report said.
Fitch sent Congress a wake up call after the debt limit fight earlier this summer. The ratings agency downgraded US sovereign debt from AAA to AA+ in August, citing the nation’s mounting debt and partisan brinkmanship as the major reasons behind its decision, CNN reported.
The gross national debt has grown at an alarming pace since then -- by $1 trillion in the last three months alone.
Political finger pointing around what caused the accelerated debt accrual, meanwhile, has left the government at an impasse around the budget.
The budget deficit -- the difference between what the government spends and what it takes in -- reached $1.5 trillion for the first 11 months of the fiscal year, an increase of 61 per cent since last year.
The recent increase in interest rates has already made it much more expensive for the government to pay back what it owes. And a shuttered government, without a plan for how to pay down its debt, would make the problem worse, CNN reported.
“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael Peterson, CEO of Peter G. Peterson Foundation, a bipartisan group that advocates for fiscal responsibility.
“With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids,” he said, CNN reported.
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