Goldman Sachs Warns: US Debt Nearing WWII Peak, Inaction Could Trigger the Most Severe Tightening in History

Goldman Sachs has pointed out that Trump’s spending plans will not prevent U.S. government debt from rising to “unsustainable” levels, with the current debt burden second only to that of World War II. Next year, the U.S. will have to pay $1 trillion in interest on $36 trillion of government debt, an amount exceeding the combined spending on Medicare and defense. Goldman Sachs economists warn that if U.S. lawmakers delay addressing the deficit, unprecedented fiscal tightening may be required in the future to avert a crisis. In a report released Tuesday, Manuel Abecasis, David Mericle, and Alec Phillips of Goldman Sachs noted that although the House Republican spending bill, together with increased tariff revenues, would slightly reduce the budget deficit excluding interest payments, the impact on the overall deficit is essentially unchanged given the rising cost of borrowing. The report emphasized: “The current trajectory remains unsustainable—even with a strong economy, the primary deficit is far above normal levels, the debt-to-GDP ratio is approaching its post-World War II peak, and surging real interest rates are causing the share of debt and interest payments in GDP to grow much faster than expected in the previous cycle.” Goldman Sachs stated that the future scale of debt will depend heavily on interest rate trends over the next two decades. The current $36 trillion in government debt is about 120% of GDP, and the U.S. Treasury is forced to issue new debt to pay the ever-increasing interest. According to the think tank Committee for a Responsible Federal Budget, U.S. government interest payments will reach $1 trillion next year, making it the second-largest government expenditure after Social Security.