I’m sure others can do a better job responding to this than I can, but a few thoughts:
It’s true that the high US debt/​GDP ratio is not harmless, especially insofar as it leaves less fiscal headroom to deal with future recessions, wars etc.
If investors thought the US were likely to need to default or inflate away debt, then 30-year treasury rates would be extraordinarily high (since otherwise they wouldn’t purchase them). That’s the opposite of what we see, where long-run interest rates are less than short-run interest rates.
The US economy is growing faster than inflation. So cost of living adjustments aren’t such a big deal since tax revenue is growing as well
I’d expect US debt to grow much less in a potential upcoming recession than in 2008 or 2020. It made sense to be doing a lot of fiscal stimulus in response to the 2008 financial crisis, but if the fed intentionally triggers a recession as part of controlling inflation, fiscal stimulus doesn’t make as much sense to do.
The US gov tax revenue is $4.9T. According to the CBO (Congressional Budget Office), Mandatory spending will cost $3.7 trillion dollars in 2022. This includes all entitlements and expenditures that are signed into legislation and are considered absolute obligations, such as social security and medicare. Then we add in the estimated $800B of defense spending (which is contractual), and we get a total of $4.5T.
The problem is interest expense itself is currently costing $482 Billion dollars. So we have at least $82 Billion in deficit, which means we have to borrow even more money to pay back the extra interest expense that we can’t pay back. Note that this doesn’t even take into account some of the other discretionary spending as well as unfunded liabilities.
This is true of the current budget, but the US could raise taxes to cover interest payments in the future. The US has relatively low taxes compared to other rich countries. Raising the US tax/​GDP ratio to that of Germany would raise about $2T more per year in taxes than the US currently takes in.
I’m sure others can do a better job responding to this than I can, but a few thoughts:
It’s true that the high US debt/​GDP ratio is not harmless, especially insofar as it leaves less fiscal headroom to deal with future recessions, wars etc.
If investors thought the US were likely to need to default or inflate away debt, then 30-year treasury rates would be extraordinarily high (since otherwise they wouldn’t purchase them). That’s the opposite of what we see, where long-run interest rates are less than short-run interest rates.
The US economy is growing faster than inflation. So cost of living adjustments aren’t such a big deal since tax revenue is growing as well
I’d expect US debt to grow much less in a potential upcoming recession than in 2008 or 2020. It made sense to be doing a lot of fiscal stimulus in response to the 2008 financial crisis, but if the fed intentionally triggers a recession as part of controlling inflation, fiscal stimulus doesn’t make as much sense to do.
One more note. You say
This is true of the current budget, but the US could raise taxes to cover interest payments in the future. The US has relatively low taxes compared to other rich countries. Raising the US tax/​GDP ratio to that of Germany would raise about $2T more per year in taxes than the US currently takes in.