A million simulations predict a dire ending to America’s debt problem

America’s ballooning budget deficits have put the country on a path to financial ruin, according to recent simulations by Bloomberg Economics.

Bloomberg's research arm ran a million forecast simulations to determine just how fragile the U.S. debt outlook is in light of the federal government’s continued spending. The results are alarming, to say the least.

In 88% of the forecast simulations, America’s debt-to-GDP ratio will increase over the next decade—putting the country on an unsustainable path.

Currently, the debt-to-GDP ratio stands at 97%, indicating that the nation borrows nearly as much as it generates in economic value each year.

While there’s no universal rule of thumb for how high a debt-to-GDP ratio can go before it becomes a problem, economists typically flag anything above 60% as being worrisome.

Bloomberg Economics’ simulations suggest the U.S. debt-to-GDP ratio will reach a staggering 123% in 2034. It’s then expected to continue rising over the next two decades, reaching a high-end target of 154.9% by 2050.

At these growth rates, Washington would need to spend 5.4% of GDP by 2034 just to service its debt. Interest payments on the national debt reached a grim milestone last year, crossing $1 trillion for the first time.

The simulations assume the market’s current expectations for future interest rates, projected economic growth rates, and the government’s projected spending. The researchers said we can expect even higher debt-to-GDP ratios if Trump-era tax cuts remain largely in place.

Sounding the alarm

The heads of America’s most powerful institutions warn that the ballooning national debt will have dire consequences if not contained. According to them, it would be a costly mistake to let the deficit grow unchecked over the next decade.

“The situation is more urgent than I can ever remember,” BlackRock CEO Larry Fink wrote in his annual letter to investors. “There’s a bad scenario where the American economy starts looking like Japan’s in the late 1990s and early 2000s, when debt exceeded GDP and led to periods of austerity and stagnation.”

For the uninitiated, Japan experienced a “lost decade” in the 1990s following the bursting of its “everything bubble.” Even today, the country hasn’t fully recovered.

“A high-debt America would also be one where it’s much harder to fight inflation since monetary policymakers could not raise rates without dramatically adding to an already unsustainable debt-servicing bill,” Fink added.

According to JPMorgan Chase CEO Jamie Dimon, the way policymakers have run up the national debt “is the worst possible way to do it,” adding that the financial cliff is “about ten years out.”

Meanwhile, Citadel founder Ken Griffin recently told investors that the national debt is a “growing concern that cannot be overlooked.”

As Griffin noted, net interest spending on the debt is expected to reach 3.1% of GDP, far outstripping the average from 1974 to 2023. “We must stop borrowing at the expense of future generations.”

Despite Griffin’s urgent cries, all signs point to increased government borrowing, especially heading into the presidential election.

$1 trillion every 100 days

At current rates, the national debt is growing by roughly $1 trillion every 100 days—a pattern that first emerged in mid-2023. Before that, it took roughly eight months to add $1 trillion.

The debt surpassed $34 trillion on Jan. 4 and is currently clocking in at $34.6 trillion.

With growing debt servicing costs due to higher interest rates, Moody’s Analytics has lowered the U.S. government’s credit rating outlook from "stable" to "negative."

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the rating agency said in November. “Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability.”

Fitch, another credit rating agency, said Washington’s fiscal deficit will continue to grow ahead of the presidential elections—a time when policymakers attempt to shore up public support with new spending initiatives.

Earlier in March, President Biden outlined a $7.3 trillion budget to kickstart his second presidential term. The budget includes new spending programs to assist Americans struggling with high housing and childcare costs.

While experts say the measures are unlikely to be adopted in their current form, the budget reaffirms the president’s plan to increase spending if he’s re-elected.