US debt crisis: Generation Z can pay dearly for this big mistake, warns top economist

That’s because Generation Z already has enough to fret about and has turn out to be increasingly pessimistic. High borrowing costs have kept young adults out of the housing market, while some scientists also point to the impact of social media on anxiety.

But Todd Buchholz, who served as White House economic policy director under President George HW Bush, said: “Members of Generation Z must also worry concerning the irresponsible debt that baby boomers and Generations X and Y (Millennials) are inflicting on them burden.” .”

Certainly, U.S. debt has been skyrocketing for many years. But necessary milestones have been achieved in recent times. For example, Gross Federal Debt to US GDP has exceeded the extent reached immediately after the Second World War. In fact, the fee of servicing the debt is predicted to dwarf defense spending this yr.

People like Fed Chairman Jerome Powell, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan, and BlackRock CEO Larry Fink have recently sounded the alarm about U.S. debt. But Buchholz made it clear what consequences Generation Z specifically should have.

“Half of young adults don’t think they’ll ever be able to afford a home, but will still have to pay for their grandparents’ extravagance,” he wrote in a single op-ed for Project syndicate On Wednesday.

The USA had the possibility to enhance the debt outlook, but missed it, explained Buchholz. After the Great Financial Crisis, the Federal Reserve’s monetary stimulus kept Treasury yields at rock-bottom levels for years, meaning rates of interest on U.S. debt were historically low cost.

The Treasury Department, which sells U.S. debt to global bond markets, could have secured these low rates of interest by issuing bonds with maturities of fifty or 100 years, reasonably than bonds with maturities that typically max out at 20 or 30 years.

“But the Treasury largely stuck with short-term borrowing, with the average term of the bonds being just five years,” Buchholz said. “As a result, maturing debts will be rolled over at a higher cost.”

In March 2021, when U.S. bond yields were still at low levels of around 1.5%, Treasury Secretary Janet Yellen said there have been “no current plans” to issue super-long debt. That prompted hedge fund manager Stanley Druckenmiller last yr to call it the “biggest mistake in the history of the Treasury.” Today, yields are hovering near 4.5%, after topping 4.7% late last month.

While the US missed its likelihood to secure low cost debt, not less than 14 countries and dozens of firms and universities issued super-long bonds, Buchholz emphasized.

But he added that there could also be other options in the longer term, suggesting that the Treasury should unleash a flood of super-long bonds once inflation-adjusted yields fall below the historical average of about 1.55 % fall.

Still, that will not eliminate the huge federal deficits which are driving the rise in U.S. debt.

“The fundamental budget problem is of course excessive spending,” said Buchholz. “President Ronald Reagan once joked that the government was like a baby: it had a big appetite on the one hand and no sense of responsibility on the other. That joke is as true today as it was half a century ago.”