Goldman Sachs Warns US Debt-to-GDP Could Hit 132% by 2035

Goldman Sachs has issued a warning that rising US interest rates could significantly exacerbate the country's debt problem. The investment bank predicts that persistently high rates could push the US debt-to-GDP ratio to 132% by 2035, a stark increase from current levels. This projection is 10 percentage points higher than Goldman Sachs’ baseline forecast, according to a recent note.

The primary concern is the rising cost of servicing the US national debt. Higher interest rates would increase the amount of money the government spends on interest payments, which is already at a record $1.25 trillion annually. This figure has more than quadrupled in just four years, consuming nearly 18.5% of federal government revenue, the highest level since 1991.

The growing debt burden could force the US to reduce its budget deficit sooner than expected to prevent further increases in the debt-to-GDP ratio. Additionally, the sharp rise in US Treasury yields, with the 10-year yield reaching about 5.28%, has increased borrowing costs for the government. The Federal Reserve's recent rate hikes, driven by inflation pressures and a resilient economy, have contributed to this challenge.

Billionaire David Rubenstein also highlighted the severity of the US debt situation, noting that interest payments have surpassed national-security spending. This development underscores the potential for higher debt-service costs to limit the government's ability to fund other priorities, such as defense, infrastructure, and social programs. The combined warnings point to a growing financial strain that could impact future economic flexibility and fiscal policy.