Why US Debt Is Unsustainable and Destroying the Middle Class

Commentary In a recent social media post, a talented financial analyst and investor stated: “The ‘debt is unsustainable’ narrative has been around for 40 years plus. What’s astonishing to me is how the people who push this narrative never ask themselves, ‘Why has it been sustainable for so long?’” There is a widespread idea that the fiscal imbalances of a world reserve currency issuer would end in an Argentina-style bankruptcy. However, the manifestation of unsustainability did not even appear as drastic in Argentina itself. Hey, Argentina continues to exist, doesn’t it? Excessive public debt is unsustainable when it becomes a burden on productive growth and leads the economy to constantly rising taxes, weaker productivity growth, and weaker real wage growth. However, the level of unsustainable accumulation of debt may continue to rise because the state itself imposes public debt on banks’ balance sheets and the state forces the financial sector to take all its debt as the “lowest-risk asset.” However, all of this is simply a forced construct imposed by law and regulation. Rising debt bloats the government’s size in the economy and erodes its growth and productivity potential....