BlueSky Thinking Summary

In an interview with Kellogg Insight, David Besanko, a specialist in regulation and competitive practices, offered his opinion on the essential question of the U.S.

debt ceiling.

He said that while today's national debt is at 100 percent of GDP, the impact is not directly felt, although it could lead to higher interest rates in the future, negatively impact investment, and constrain fiscal policy in response to future downturns.

Besanko dates the foundations of the debt ceiling back to 1919 as part of an initiative to control government borrowing when the economy started recovering from recession.

Given a default by the United States, he forecasts deep, abrupt cuts in spending;

chaotic conditions for financial markets;

and serious disruptions to federal payments, including those to Social Security.

He termed other suggested solutions, like giving priority to debt payments or minting a platinum coin, implausible and potentially destabilizing.

The interview concludes with lessons learned regarding political dynamics' role in having to negotiate a debt-ceiling increase for economic stability and how to handle other future challenges.

As the U.S.

confronts the debt ceiling dilemma, understanding the stakes could mean preparing for economic turbulence or steering towards stability.