The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk

26 Pages Posted: 14 Jun 2010

See all articles by Henning Bohn

Henning Bohn

University of California, Santa Barbara; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 14, 2010

Abstract

The rapidly growing federal government debt has become a concern for policy makers and the public. Yet the U.S. government has seemingly unbounded access to credit at low interest rates. Historically, Treasury yields have been below the growth rate of the economy. The paper examines the ramifications of debt financing at low interest rates. Given the short maturity of U.S. public debt – over $2.5 trillion maturing in 2010 – investor expectations are critical. Excessive debts justify reasonable doubts about solvency and monetary stability and thus undermine a financing strategy built on the perception that U.S. debt is safe.

JEL Classification: H63, H62, E60

Suggested Citation

Bohn, Henning, The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk (June 14, 2010). CESifo Working Paper Series No. 3079, Available at SSRN: https://ssrn.com/abstract=1624794

Henning Bohn (Contact Author)

University of California, Santa Barbara ( email )

Department of Economics
Santa Barbara, CA 93106
United States
805-893-4532 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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