High US government debt does not itself raise risks

Significance

Some economists are suggesting that, over the longer term, this could cause financial markets to stop buying US debt and charge prohibitively high rates, and cause the dollar to crash. Other economists argue that more deficit spending could fuel output and so keep relative debt levels in check.

Impacts

• In the recovery and beyond, financing the debt could raise private borrowing costs, reduce business investment and slow economic growth.
• High and rising debt might constrain policymakers in their ability to respond to unforeseen events.
• A higher debt path that boosts interest rates would give the Federal Reserve more flexibility in implementing monetary policy.