Stop reading if you're a prospective homebuyer or real estate investor worried about rising interest rates and tired of bad news. Joao Gomes, a finance professor at the Wharton School of the University of Pennsylvania, thinks America's $34 trillion debt might produce a catastrophe that sends interest rates over 7% if the government doesn't act quickly.
Gomes finds little evidence that either party has the political will or formula to manage a true crisis. JPMorgan Chase & Co. CEO Jamie Dimon and Federal Reserve Chairman Jerome Powell have also expressed alarm about America's debt and its possible economic impact.
Gomes Sees Immediate And Long-Term Economic Risk Gomes thinks America's debt might destabilize the economy as early as 2025, unlike many of his peers. Gomes thinks a debt catastrophe could occur if the future administration makes the wrong choices. He also thinks the government should intervene before the issue escalates.
Considering U.S. debt, he told Fortune, "It might derail the next administration. If they propose huge tax cuts or fiscal stimulus, markets could protest, interest rates could jump, and 2025 would be a crisis. It may happen. I believe we will be there before the end of the decade.”
Lack of inventory and high prices have already cut most Americans' house buying power by a half. If interest rates stay above 7%, the American home market may never recover. If nations owning U.S. bonds lose faith in America's capacity to pay them, they may demand higher interest rates on future bond acquisitions.
Six years may seem like a long time, but the U.S. economy may change in six years. Plans to avoid disaster must be made now since things can spiral out of hand faster than predicted. Gomes cites the U.K. mortgage catastrophe under former Prime Minister Liz Truss.
After the British government announced an unpopular economic package, mortgage rates skyrocketed. Truss resigned quickly after the British pound plummeted. Gomes fears a repetition in the U.S. if the next administration doesn't balance spending reduction and economic growth.
Gomes wants immediate action but doubts it will happen. Gomes's dread of approaching catastrophe is not shared by everyone, even those who worry about U.S. debt. Gomes recently said on X, "I worry more about U.S. debt than most colleagues. I think voters should ask politicians who don't take this threat seriously tougher questions this election year."
His point is likely valid. But he also knows that preventing a debt crisis will push America's elected authorities to make tough, unpleasant decisions regarding a complicated topic. That's worrisome because unpopular actions usually cost politicians their next election, and winning is every politician's major goal. That means Americans must demand debt relief.
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