It's 'probably not plausible' that a strong economy can steady U.S. debt as 5%-6% growth is needed

Key Points:

• The U.S. gross debt has reached $40 trillion, with publicly held debt at 100% of GDP, and the Congressional Budget Office (CBO) projects this ratio could rise to 120% by 2036 without significant economic growth or policy changes.
• CBO Director Phillip Swagel highlighted that while stronger economic growth can increase federal revenue, it also raises federal spending through higher wages and Social Security outlays, and tends to push interest rates up, increasing debt interest costs.
• Swagel noted that AI-driven productivity gains are expected to boost future economic growth, but even this enhanced growth will likely be insufficient to stabilize the debt-to-GDP ratio without changes in revenues or spending.
• To stabilize the debt, nominal GDP growth would need to reach 7%-8% and real GDP growth 5%-6%, far exceeding current real GDP growth rates around 2.2%, making growth alone an unlikely solution.
• Rising interest rates pose a risk of triggering a vicious cycle that worsens deficits and debt, with long-term yields already at 24-year highs due to factors including strong economic conditions, Fed rate hike expectations, inflation, and the large scale of U.S. debt.