Is Rising US Debt a Near-Term Problem for Markets?

Aaron Anderson:

I'm going to say yes and no.

Are we concerned about debt and high deficits and accumulating debt rapidly over time?

Yes, that is something that's a concern to us, but is it something that looks like a near-term problem? No, it doesn't.

I mean, this is a topic, as you can imagine, we are studying and fielding questions on all the time, and we've done lots of work on this topic over many, many years, and it certainly doesn't seem like we're on the precipice of some debt-fueled disaster.

As you look at the amount of interest we're paying on our debt relative to the size of the economy, relative to tax receipts, it still looks quite manageable. You have to look not just at the absolute level of national debt, but scale that relative to the size of the economy. And although that number has risen over time, the US actually isn't a huge outlier relative to other countries in the world that have similar levels of debt to GDP.

So, would we like to see us start to rein in those deficits, to rein in some of those debt-to-GDP or just absolute debt levels? Absolutely, we'd like to see that, but does it pose a big near-term risk to the economy? No, we don't think it does.

Could it become one at some point in the future? Absolutely, I wouldn't say that debt can never become a problem. We've seen at times in history that countries do run into the problem, running too much debt with too big a deficit.

Although I think it's important to consider the fact that the US is a huge economy, it's far and away the biggest in the world, it's a very diverse economy. We've got our own currency, we've run our own monetary policy.

So, in a lot of ways, you could argue the US can probably handle significantly higher debt levels and debt-to-GDP levels than other parts of the world can. But even there, there's a limit. But it doesn't appear to us right now like we're anywhere close to that limit.

And so, we'd love to start to see those deficit levels come down, we'd like to see those debt-to-GDP levels start to level off and maybe even come down a little bit, but we're not that concerned at all that this is a big near-term problem that's likely to cause economic reverberations here in the coming years.

We think over the longer term, it's going to be something to be mindful about, but not a big near-term problem.