According to BlackRock’s Larry Fink known in financial circles as the oracle on investment matters, the United States is facing a growing threat from its widening federal debt burden. The expert is calling on more policymakers to pay attention to America’s "snowballing debt," Bloomberg reported.
The head of the world's largest asset manager is sounding the alarm over the risks of servicing the debt. He believes that the problem cannot be solved by raising taxes and cutting spending. Nevertheless, the US still has to deal with the hardships caused by its own profligacy, BlackRock’s founder pointed out.
Larry Fink warns against a "bad scenario where the American economy starts looking like Japan’s in the late 1990s and early 2000s, when debt exceeded [gross domestic product] and led to periods of austerity and stagnation."
According to the BlackRock chief, the sheer size of the debt will make it much harder to combat inflation without dramatic interest rate hikes and a debt-servicing bill.
Moreover, the cost of servicing the debt has skyrocketed. The current debt situation is more urgent than ever, Fink said, adding that the 3 percentage points in extra interest payments the US government now has to pay on 10-year Treasuries compared with three years ago is "very dangerous."