CHRISTINE CHMURA TIMES-DISPATCH COLUMNIST
Originally published on June 7, 2010

The debt-to-GDP ratio of Greece reached 115 percent in April when Standard & Poor's downgraded its debt rating to junk status. One has to wonder if the United States could get to that point.

We've taken on a lot of debt over the past few years to bail out insurance companies, banks and auto manufacturers.

The American Recovery and Reinvestment Act alone is adding $787 billion to our debt load. The health-care changes are expected to reduce the deficit, but that is yet to be seen.

Based on the January 2010 Congressional Budget Office's projections, federal debt held by the public will hit $7.9 trillion in 2019. The debt-to-gross domestic product ratio will reach 77 percent by 2019 -- up from 33 percent in 2001. By comparison, the historical high of 109 percent was reached in 1946 during the aftermath of World War II.

Scenarios vary about how much the federal government debt will grow in 20 or more years because of uncertainties regarding spending and other factors, such as future interest rates and business cycles.

One scenario produced by the General Accountability Office shows our federal debt exceeding 109 percent of GDP around 2036. A second scenario that uses less-favorable assumptions about revenue and spending shows debt-to-GDP exceeding prior record levels by 2020 and exceeding 200 percent by 2030.

Aside from the risks to our debt rating, what does the higher load mean to the general public? It is likely that the large increases in government debt will put upward pressure on interest rates.

Chris Varvares of Macroeconomic Advisers modeled this situation in which the 10-year Treasury yield averages about 10.75 percent and the mortgage rate reaches 13 percent by 2030.

Clearly, homeownership will be out of reach for many prospective buyers. Cars and college education also will become less affordable.

More importantly for the broader economy, however, Varvares argues that the large amount of government debt increases interest rates to the degree that it discourages business investment, which leads to a reduction in productivity.

Less-efficient workers eventually lead to fewer job opportunities, increasing unemployment and stagnant wages. Such a scenario would reduce our standard of living.

Varvares concluded: "Our generation is on the verge of dooming the United States to second-class status unless we change our ways dramatically and soon."

Although scenarios vary on the timing of our rapidly growing federal debt, one theme is clear from those studying the potential impact of the debt on our economy:

The longer we wait to address the debt crisis, the more it will cost to get it back under control.