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‘Uncharted Territory:’ Goldman Sachs Issues Dire Warning About Federal Spending

analysts have warned that if the U.S. federal government carries on increasing its deficit spending the cost of its borrowing may end up outstripping the growth rate of America’s gross domestic product.

In a Sunday note to its clients, the financial giant said federal deficit spending was “entering uncharted territory” thanks to a combination of spending increases on programs such as Social Security and Medicare, and tax cuts.

“In the past, as the economy strengthens and the debt burden increases, Congress has responded by raising taxes and cutting spending. This time around, the opposite has occurred,” Goldman Sachs’s analysts wrote, as reported by Bloomberg.

The U.S. currently has a debt of $20.7 trillion.

The government would like to spend $200 billion on a massive infrastructure plan, with the hope that the private sector would stump up several times that amount. President Donald Trump also wants to boost defense spending in the coming year. At the same time, the government has just slashed taxes.

The analysts explained that the tax reform would boost growth in the short term--”by around 0.7 [percentage points] in 2018 and 0.6 [percentage points] in 2019″--but the fiscal expansion would probably end after that.

While U.S. debt is currently estimated to be around 77% of GDP, Goldman Sachs warned that the ratio could hit 85% by 2021.

“Further [deficit] expansion would put the U.S. onto an even less sustainable long-term trend,” the analysts wrote, adding: “There is a good chance that control of Congress will change after this year’s midterm election, likely making it more difficult to further expand the deficit.”

See original article on Fortune.com

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