Assessing the Risks and Costs of the Rising US Federal Debt

We examine how rising debt affects the economy and assess the risk of a fiscal crisis. The most likely consequence of rising debt is a gradual erosion of capital accumulation and national wealth, ultimately lowering living standards. We consider four potential scenarios that could lead to a crisis and argue that, even with projected increases in federal borrowing, a fiscal crisis is avoidable. If one does occur, it will likely stem from political missteps rather than the debt itself.