Goldman Sachs Warns of U.S. Debt Crisis with 132% Debt-to-GDP by 2035

Goldman Sachs has issued a stark warning about the growing threat of rising interest rates to the United States' debt sustainability. In a recent research note, strategist Pierfrancesco Mei highlighted that prolonged high interest rates could push the U.S. debt-to-GDP ratio to 132% by 2035, a significant increase from current projections. This scenario would likely necessitate earlier deficit reduction measures to stabilize the debt burden.

The surge in U.S. Treasury yields has exacerbated the situation, with the benchmark 10-year yield climbing to a 24-year high of approximately 5.28%. This rise has been driven by inflationary pressures stemming from the U.S. conflict with Iran and the Federal Reserve's recent rate hikes. The economic resilience despite these pressures has further contributed to the bond market sell-off.

Analysts at DoubleLine have noted that annual interest expenses have reached a record 18.5% of federal government revenue, surpassing the previous high of 18.4% in 1991. This sharp increase means that nearly $1 in every $5 of government revenue now goes toward servicing the national debt, potentially diverting funds from critical investments in defense, infrastructure, and social safety nets.

As debt service costs continue to rise, discretionary spending is being squeezed, creating a negative feedback loop where the government must issue more debt to cover interest payments. This structural burden reduces the government's ability to deploy fiscal stimulus during economic downturns. Billionaire David Rubenstein of the Carlyle Group observed that historically, when a nation's interest payments exceed its spending on national security, it signals economic weakness, a threshold the U.S. has now crossed.