Wharton professor says ballooning U.S. debt could plunge U.S. markets into crisis as soon as next year

Many viewers are not interested in financial theory.Oleg Dubina/500px

  • Joao Gomez told CNBC that if the United States does not adjust its fiscal path, there may be market chaos next year.

  • The Wharton professor pointed to Britain’s mini-budget crisis as a warning.

  • He said the United States cannot afford to extend tax cuts next year.

Congress needs to act quickly to slow the alarming pace of U.S. debt growth. Wharton professor Joao Gomez warned that 2025 could be the year markets start to turmoil if Congress doesn’t adjust the fiscal trajectory soon.

That’s the lesson he learned from Britain’s 2022 financial crisis, when a stimulus-focused budget proposal sent domestic yields soaring and mortgage rates soaring, pound plummeted to historical low.

“It’s definitely going to happen next year,” Gomez told us CNBC Thursday. “We announced a fiscal path, but the market just woke up to that and said ‘This is unsustainable.'”

U.S. investors already got a taste of what this could be after the collapse of Treasuries in November 2023 pushed yields to the 5% level.Rising U.S. Debt and Oversupply of Treasury Bonds among the cited factors.

Today, Washington’s debt burden is $34 trillion, hitting a record high driven by massive spending and rapidly rising debt-servicing costs.According to Bank of America estimates last month, the U.S. is increasing $1 trillion in debt every 100 days.

In an era of rising interest rates, this heightens the real risk that the United States will slip into a default crisis within this century.Last year, a budget model from the University of Pennsylvania’s Wharton School determined that the country had 20 years to solve this problemthere is no quantity after Raise taxes or cut spending It will help.

As a result, Gomez expects the 2017 tax cut to be a major point of contention next year as it expires unless Congress chooses to extend it. The reform, introduced under the Trump administration, provides relief to companies.

“I think we’re going to have a serious debate next year about tax cuts and whether to extend them,” he said. “And I don’t think we can afford it.”

The plan’s fate depends largely on who wins the White House in November; so far, neither candidate has outlined specific plans to address the fiscal issues.

But others warn solution It’s not just about taxes. Maya McInnes told Business Insider last year that while taxes would likely increase across the income spectrum, both Democrats and Republicans would have to be willing to cut spending plans.

“There are a lot of smart plans,” the president in charge of the federal budget later said, “but we don’t have the political will.”

Gomez is not alone Announcement of U.S. borrowing scale; Wall Street titans such as Jamie Dimon and Ken Griffin have also warned of the coming crisis.

Read the original article business insider

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