$38-T US National Debt to Ignite Six Types of Economic Crises: CRFB

The US national debt has reached a precarious milestone, hitting 100% of gross domestic product (GDP) and placing the nation on a trajectory that could trigger six distinct types of fiscal crises, according to an ominous new warning issued by the Committee for a Responsible Federal Budget (CRFB), Nick Lichtenberg reported for Fortune.

With the national debt now effectively equal to the size of the entire US economy, the nonpartisan watchdog’s latest report, What Would a Fiscal Crisis Look Like?, outlined a dangerous future ahead.

“If the national debt continues to grow faster than the economy,” the report said, “the country could ultimately experience a financial crisis, an inflation crisis, an austerity crisis, a currency crisis, a default crisis, a gradual crisis, or some combination of crises. Any of these would cause massive disruption and substantially reduce living standards for Americans and people across the world.”

The report warned that unless policymakers enact a “thoughtful pro-growth deficit reduction package,” disaster likely lies ahead.

“The US is deeply indebted, and its finances are on an unsustainable long-term trajectory,” the report concluded.

While it is “impossible” to know when disaster will strike, “some form of crisis is almost inevitable” without a course correction, the CRFB said. Among the most alarming scenarios detailed is the “Austerity Crisis.”

In this potential future, a loss of market confidence would force lawmakers to enact abrupt, massive spending cuts or tax hikes to quell panic.

While deficit reduction is necessary, the CRFB warned that rapid implementation of such austerity measures during a weak economy could trigger the worst economic contraction in nearly a century.

The report estimated that a fiscal contraction equivalent to 5% of GDP could reverse modest growth into a 3% economic shrinkage.

This would mark a recession deeper than any recorded in the postwar era, with US output not shrinking by more than 2% year over year since 1950. Such a scenario would likely cause unemployment to spike and business closures to multiply, creating a self-reinforcing depression.