The Debt Is About to Matter Again
When interest rates outpace growth, very bad things can happen.

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The Debt Is About to Matter Again
“… The debt, according to these economists, still mattered. But whether it would become a serious problem, they observed, depended not on how big and scary the number was (about $28 trillion at the time, and today closer to $36 trillion), but instead on a simple formula involving the variables
r and
g. As long as a country’s economic growth rate (
g) is higher than the interest rate (
r) it pays on its national debt, then the cost of servicing that debt will remain stable, allowing the government to roll it over indefinitely without much worry. Given that interest rates had been close to zero for a decade, Furman and Summers concluded that the “economics of deficits have changed” and called on Washington to “put away its debt obsession and focus on bigger things.”
But what was true then is true no longer. The combination of Donald Trump’s growth-inhibiting tariff crusade and the GOP’s deficit-exploding tax bill is likely to push the relationship between
r and
g into extremely dangerous territory. “In a short amount of time, the fiscal picture has gone from comfortably in the green-light region to the red-light region,” Summers recently told me. In other words, now would be a very good time for Washington to bring back its debt obsession.…”