Under current policy, slower economic growth would increase the projected growth in federal debt.
June 15, 2012
SOURCE: Data from the Congressional Budget Office, The 2012 Long-Term Budget Outlook, June 2012. Compiled by PGPF.
Rising federal deficits can crowd out capital investment in housing, business equipment and structures, raise interest rates, slow the growth of productivity, and undermine the growth of real wages. Over time, because the economy grows more slowly, tax collections taper off and the burden of federal debt rises. CBO estimates how those economic feedbacks would affect its projections of federal debt in the long run. If anything, these estimates are optimistic because they do not account for the risk of a fiscal crisis. If foreign lenders lost confidence in America's ability to pay back its debt, interest rates would shoot up much more than assumed in CBO's calculations and push the debt into a vicious spiral of even larger deficits, higher interest costs, higher debt, and slower economic growth.
This chart appeared as part of PGPF's analysis of Congressional Budget Office's 2012 Long-Term Budget Outlook. To read the full report, click here.
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