The broad goal behind the fiscal cliff is to make the United States’ debt level more reasonable. Right now, the country’s debt-to-GDP ratio is 70%, the highest level in more than 70 years. By contrast, that’s slightly lower than Germany’s debt/GDP ratio of 81%, and more than half Greece’s ratio of 163%. Economists have generally concluded that when a country reaches a debt/GDP ratio of more than 90% or 100%, economic growth is constrained.
Why? A more indebted country faces greater borrowing costs, and it reduces the flexibility to respond to unexpected situations. It also raises the odds that investors could, eventually, lose confidence in the government’s ability to manage its budget, sparking another financial crisis. Sources: CBO; European Commission: European Economic Forecast, Spring 2012; International Monetary Fund’s World Economic Outlook: Coping With High Debt and Sluggish Growth
(Photo via Forbes) More from Forbes
: Do You Have Enough Money to Retire? How to Negotiate a Year-End Raise The Best and Worst States for Retirement The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.