Sovereign debt
Why it’s a problem: Large gaps between federal spending and revenues, in the recent past and projected over the coming decades, have all but eliminated fiscal policy as an option to lift America from another downturn.
How bad it could get: If debt levels rise unchecked and the economy suddenly weakens, U.S. borrowing costs could increase sharply, forcing lawmakers into painful austerity measures and triggering a prolonged recession.
What we can do about it: Reassure debt markets by taking credible steps to reduce fiscal deficits in the medium and long term.
Video by Theresa Poulson with photos by Getty Images
This article appears in the March 12, 2011, edition of National Journal.
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