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Dr Phillip Swagel is an optimist, both by nature and when he looks at the U.S. economy.<\/p>\n
This fact is perhaps at odds with what one might assume: Swagel is the director of the Congressional Budget Office (CBO), the nonpartisan agency that offers independent budgetary and economic analysis to Congress.<\/p>\n
Very often\u2014an inevitable occupational hazard\u2014the subject of national debt and the interest the U.S. Treasury pays to maintain is its central focus. The numbers are eye-watering: Public debt stands at more than $39 trillion. The interest expense on that borrowing now exceeds $1 trillion a year. Indeed, the latest budget update from the CBO highlights that the government\u2014according to preliminary estimates\u2014paid out nearly $530 billion between October 2025, when the fiscal year starts, and March 2026. This equates to more than $88 billion in interest payments a month, or more than $22 billion a week.<\/p>\n
The CBO\u2019s figures are routinely cited by policymakers, think tanks, and lobbyists as alarming evidence that the U.S. needs to find a more sustainable fiscal path or risk dire straits.<\/p>\n
Swagel doesn\u2019t subscribe to the notion that the U.S. will face a crisis of its own making. His justification is simple: He was at the Treasury during the 2008 financial crisis, and joined the CBO months before the COVID pandemic began. He has watched as the U.S. economy, seemingly against all odds, has clawed its way out of economic crises before.<\/p>\n
That\u2019s not to say Swagel isn\u2019t a staunch advocate of setting the U.S. on a more sustainable fiscal path\u2014rather, he trusts the people in power to do so when the time comes.<\/p>\n
Why the optimism?<\/p>\n
Among those concerned about national debt are notable names: JPMorgan Chase CEO Jamie Dimon, Federal Reserve Chairman Jerome Powell, and Bridgewater Associates founder Ray Dalio. Tesla CEO Elon Musk is also worried about federal spending and has endorsed a plan floated by Berkshire Hathaway founder Warren Buffett that would render members of Congress ineligible for reelection if they allow deficits to exceed 3% of GDP. <\/p>\n
On the other hand, optimistic economists suggest that, despite the value of the debt, it\u2019s not actually an issue: the bond market is holding steady, indicating a reliable market of buyers. Likewise, the U.S.\u2019s own central bank buys huge swaths of the debt, meaning, in the simplest of layman\u2019s terms, the economy can essentially print its own money. There are holes in this argument, not least the fact that Fed chairman nominee Kevin Warsh has suggested he would like to reduce the Fed\u2019s balance sheet and may therefore be less inclined to finance borrowing.<\/p>\n
Swagel\u2019s positive outlook doesn\u2019t rely on the argument that a crisis hasn\u2019t happened yet, so therefore it never will: \u201c[My optimism] is rooted in my experience,\u201d Swagel tells Fortune in an exclusive interview in Washington D.C. \u201cFirst being at Treasury during the financial crisis and seeing very difficult times and the country coming together with an effective response\u2014not saying it\u2019s perfect, lots of controversy\u2014but it was effective.\u201d<\/p>\n
\u201cThe second thing is policymakers are smart, they\u2019re thoughtful. Interacting with members of Congress makes me optimistic. I know you read about all the squabbles \u2026 I\u2019m completely aware of this, but the policymakers that are thinking about these things are thoughtful and effective. Not necessarily always effective at passing legislation, but that\u2019s part of our political system, it was set up to make it difficult ot pass legislation.\u201d<\/p>\n
Decisions on the horizon<\/p>\n
Swagel\u2019s optimism that Congress will be pushed into action will be tested sooner rather than later, likely at some point in the next six years, he told Fortune. This is partly due to the fact that, according to the Committee for a Responsible Federal Budget (CRFB) both Social Security and Medicare will become insolvent within that time period.<\/p>\n
\u201cMaking progress to address the fiscal trajectory would be a positive for the U.S. economy,\u201d Swagel said. \u201cCredible steps would lead to lower interest rates that would make the subsequent adjustment easier, there is a reward to virtue. It\u2019s a positive thing, we can\u2019t go on [with] the scolding narrative. My sense is that members of Congress understand the fiscal situation, it\u2019s not that everyone single one has looked at our one-pager of numbers and understands the debt to the third decimal point, but they understand something needs to be done.\u201d<\/p>\n
\u201cIt doesn\u2019t have to be done immediately, but at some point reasonably soon.\u201d <\/p>\n
Swagel is of the opinion that bond investors haven\u2019t increased risk premiums not because they\u2019re not worried about a fiscal crisis, but because they have priced in preventative action from Congress\u2014in his mind \u201ca vote of confidence that my optimism is not misplaced.\u201d<\/p>\n
\u201cAs a country, we face up to these problems. It\u2019s not happening now, I\u2019m not sure it\u2019s going to happen in the rest of this year or even the next year, or the next two years. But we will face up to it, and the market in some sense expects us to, because otherwise interest rates would be higher,\u201d he explained. <\/p>\n
The Cheesecake Factory<\/p>\n
The role of the CBO, to some extent, is to provide policymakers with their options if and when they do choose to take action on federal deficits. It\u2019s a menu not unlike the Cheesecake Factory, Swagel says: Large, inclusive of a range of modifications and options, and delivered without judgement. <\/p>\n
\u201cRight now it\u2019s maybe a pick three, and you\u2019re looking at a six or seven course menu,\u201d joked Caleb Quakenbush, director of fiscal policy at the Bipartisan Policy Center, in an interview with Fortune. \u201cThe longer you delay, the more you\u2019re gonna have to add to your tab, and those options become more expensive.\u201d<\/p>\n
Indeed, economists and analysts aren\u2019t necessarily worried about the absolute level of government debt, rather the debt-to-GDP ratio. Depending on whom you ask, the debt-to-GDP ratio stands at around\u00a0122% of GDP at present. This measure demonstrates an economy\u2019s spending versus its growth, and the risk associated with lending to a nation that isn\u2019t growing fast enough to handle its spending. To rebalance that ratio, an economy could either cut spending or increase growth\u2014the latter being by far the less painful option.<\/p>\n
The growth option is becoming less feasible, Michael Peterson, CEO of fiscal think tank the\u00a0Peter G. Peterson Foundation, told Fortune in an exclusive interview: \u201cI think it requires government action because we\u2019ve waited so long.\u00a0We\u2019ve added so many trillions, and the current deficit is so big at 6% that the level of growth you would need really exceeds what is feasible.\u00a0<\/p>\n
\u201cGrowth needs to be a part of it, but it\u2019s sort of a vicious cycle. The longer we delay, the more debt we have, the slower growth is going to be. The more we get this under control, I think the greater optimism there is, interest rates go down, more growth comes from that.\u00a0It\u2019s sort of a virtuous or vicious cycle depending on your policy response.\u201d<\/p>\n
#Director #CBOknown #gloomy #national #debt #datais #optimistic #crisis #avoided<\/p>\n","protected":false},"excerpt":{"rendered":"
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