Expert Fears That U.S. Market Will 'Break' Due To Soaring Debt

Joao Gomes, a Professor of Finance at the Wharton School, recently expressed that if the U.S. government doesn't slow its spending soon, the soaring debt might pose a disruption to the market.

In a recent interview, Gomes cautioned that the U.S.'s $34 trillion debt burden could cause trouble down the road.

With the pace of government spending showing no sign of slowing, experts have repetitively warned that U.S. debt is climbing sharply. Billionaire investor Ray Dalio previously predicted that the U.S. would eventually face a debt crisis, which could render U.S. economic growth nearly zero.

Bank of America analysts stated this month that considering the current speed of government spending, federal debt is mounting by about $1 trillion every 100 days. The Congressional Budget Office (CBO) predicts that by 2034, federal debt as a percentage of GDP will rise from the current 99% to 116%.

What I'm really worried about is it's going to double its share of GDP in 20 years. That I can't see as us being able to afford, Gomes said.

Goldman Sachs previously estimated that by 2025, the U.S.'s debt costs might reach a new high. According to another analysis by the Peter G. Peterson Foundation, in the next decade, the total interest payments on U.S. debt may reach $10.6 trillion.

Jamie Dimon, CEO of JPMorgan Chase, even depicted debt as heroin and claimed that America has practically become addicted to debt, thus placing the U.S. economy at risk.

According to Wharton School's own budget model prediction, if the U.S. does not change course, it could face a debt default in 20 years, with possibly devastating consequences for the country's economy.

Gomes stated that although the U.S. can currently afford the debt, the continually mounting debt might become concerning in the coming years, as investors could worry more about the rising cost of servicing these debts and reduce their holdings of U.S. Treasury bonds.

This could imply that one day, the U.S. might not be able to rely on countries like China and Japan to purchase debt securities to fund the government.

At some point, markets will break, he said.