Debt Sustainability: Time to Splurge or Time to Save

By Shushanik Papanyan

As the gross debt-to-GDP ratio steadily rises, should the U.S. worry about its ability to repay debt, cut spending, and raise interest rates?

Or should the Federal Reserve keep interest rates low to spark the U.S. economy? According to our analysis, the U.S. debt sustainability is not an imminent threat, but further deterioration of the fiscal position and fiscal policy could lead to a downgrade in the nation’s credit rating and could spur a financial crisis.