The US government could owe as much as 146 per cent of GDP by 2030, the level state debt is due to hit in Greece, warns Ben Bernanke, the chairman of the Federal Reserve.
In a speech at the Annual Conference of the Committee for a Responsible Federal Budget yesterday, Bernanke outlined longer term projections which predict the structural budget gap will increase significantly over time.
Bernanke said a refusal to raise the £8.7 trillion debt ceiling could lead to the US having its credit rating cut.
The US’s federal budget deficit currently stands at 9 per cent of GDP.
“The ratio of outstanding federal debt to GDP, expected to be about 69% at the end of this fiscal year, would under that scenario rise to 87% in 2020 and 146% in 2030,” said Bernanke.
A scenario where the budget deficit shrinks to 5 per cent by 2015 would require “close to full employment.” The current rate of unemployment in the US is currently 8.7%.
Bernanke also warned that, due to an increasing share of US debt being financed by borrowing from abroad, “a growing share of… future income would be devoted to interest payments on foreign-held federal debt.”
The government should prioritise stabilising the ratio of debt to GDP while continuing to “support ongoing gains in living standards”, says Bernanke.