Title page
Contents
EXECUTIVE SUMMARY 1
INTRODUCTION 2
FIVE FISCAL TRUTHS 3
1. The United States Today Has a Historically High Budget Deficit 3
2. High Deficits Come on Top of a High Existing Debt Burden 4
3. On Unchanged Policies, Debt Is Set to Explode Further 4
4. Borrowing Has Become More Expensive with Higher Interest Rates 5
5. The Debt Outlook Is Highly Sensitive to Rising Interest Rates 7
THE CASE FOR DEFICIT REDUCTION 7
1. As Insurance against an Acute Fiscal Crisis 8
2. As Insurance against Bad Policy Stemming from a Fiscal Crisis 10
3. Because High Debt Is Associated with Slower Economic Growth 11
BROAD LESSONS FROM SUCCESSFUL DEFICIT REDUCTION PROGRAMS 11
THREE PATHS FORWARD 12
CONCLUSION 15
Table 1. Illustrative deficit reduction measures 14
Figure 1. Federal budget balance is historically high and rising 3
Figure 2. Federal debt held by the public jumped after the Great Recession and pandemic 4
Figure 3. On unchanged policies, federal debt held by the public will continue to soar through 2054 5
Figure 4. Bond yields are back to levels not seen since before 2008 6
Figure 5. Yields on Treasuries across all maturity durations have surged 6
Figure 6. Government borrowing is sensitive to higher interest rates 7
Figure 7. In Greece's fiscal crisis, the 10-year bond yield jumped suddenly 9
Figure 8. The output and debt effects of a 1-percent-of-GDP deficit reduction in the United States 1978-2014 14
Boxes
Box 1. Case study on Canada 13