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US Debt Crisis Looms: Economist Warns of Shock Triggers
9 Oct
Summary
- US debt is nearing all-time highs, with servicing costs rising.
- External shocks like war, cyberattacks could trigger a crisis.
- AI may not solve debt issues; interest rates could rise further.
The United States faces increasing vulnerability to a debt crisis as its national debt climbs to all-time highs. Rising interest rates mean debt servicing costs are rapidly ascending the federal budget, potentially becoming the largest expenditure. Former IMF chief economist Kenneth Rogoff points to external shocks as potential triggers for a crisis.
Such shocks could include a significant war, a major cyberattack, or geopolitical instability like escalating tensions in Taiwan. Rogoff notes that the US, as the world's largest debtor, is particularly susceptible to these risks in an environment of rising interest rates. Political inertia further complicates the situation, with many in Congress acknowledging the problem but feeling unable to act.
Rogoff suggests that even advancements like artificial intelligence may not offer a solution to the debt problem. Instead, AI's benefits to capital could lead to further increases in interest rates, making it more expensive to service the existing debt, which already exceeds 100% of GDP.
