If you’re a potential homeowner or real estate investor worried about rising interest rates and tired of hearing bad news, you might want to stop reading now. That’s because Joao Gomes, a finance professor at the University of Pennsylvania’s Wharton School, says America’s $34 trillion debt might create a catastrophe that sends interest rates soaring over 7% if the government doesn’t act quickly.
Gomes finds no indication that either party has the political will, let alone the proper formula, to deal with what he regards as a true catastrophe on the horizon. He is not alone in that judgement, as JPMorgan Chase & Co, CEO Jamie Dimon and Federal Reserve Chairman Jerome Powell have both lately expressed profound worry regarding
Although many of his colleagues consider America’s debt load as a long-term issue, Gomes believes it has the potential to wreak havoc on the American economy by 2025. Gomes feels there is a risk of a debt catastrophe if the future administration pursues the incorrect policies. He also feels that the government must intervene before the situation becomes out of hand.
In an interview with Fortune magazine regarding US debt, he stated, “It could derail the next administration, frankly.” If they propose huge tax cuts or other significant fiscal stimulus, the markets may revolt, interest rates may soar immediately, and we may face a catastrophe in 2025. It’s certainly possible.
A lack of availability and high prices have already reduced most Americans’ purchasing power in the housing market. If interest rates rise beyond 7% and remain there, the American home market may be destroyed beyond repair. That is a possibility if nations holding US bonds lose faith in America’s ability to repay its debts and started demanding higher interest rates on future bond purchases.
The end of the decade may appear far away, but six years is a short period when it comes to something as massive as the US economy changing course. Plans to avert disaster must be implemented immediately since there is history for things spinning out of control far faster than planned.
It’s worth emphasising that Gomes’s dread of imminent catastrophe isn’t shared by everyone, even those who believe that the US debt is a worry. In a recent post on X, Gomes stated, “I probably worry about US debt more than most of my colleagues.” However, in this election year, I believe voters should pose far harsher questions to politicians who do not take this issue seriously.”
He probably has a point. However, he concedes that avoiding a debt crisis would inevitably compel America’s elected authorities to make a number of tough and unpopular decisions concerning a complicated subject. The worrying aspect is that politicians who make unpopular judgements tend to lose their next election, and winning the next election is every politician’s primary responsibility.