LIVE MARKETS-Can the AI boom fix the US budget problem?

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

CAN THE AI BOOM FIX THE US BUDGET PROBLEM?

Concerns about debt dynamics are pushing yields higher, with investors focused on rising borrowing needs, stubborn budget deficits and an ever-growing pile of government debt.

That said, it may be worth throwing in some numbers from the the US Committee for a Responsible Federal Budget (CFRB) to show just how big the problem could become.

“Under current law, we project debt will rise from 100% of GDP today to 122% by 2036, while budget deficits will grow to 6.9% of GDP,” a CFRB note says.

The US would need sustained, broad-based growth of 3.3% per year to hold debt to 100% of GDP and an average 4.4% (2.5 times projections) to reduce deficits to the target 3% of GDP by 2036 and 7.2% (4 times projections) to balance the budget, it adds.

Growth makes debt more affordable because it boosts incomes and tax revenues, making it smaller relative to the size of the economy.

“Although sustained annual real economic growth above 3% is not impossible given the potential of artificial intelligence, it would likely be unprecedented,” CFRB says.

3% growth is not uncommon historically. However, a CFRB paper showed this level of growth was driven largely by favourable demographics and the increase of women in the workforce, neither of which could be replicated in the context of America’s current ageing population.

(Stefano Rebaudo)

*****

EARLIER ON LIVE MARKETS

SPACE STOCKS: PLENTY OF BELIEVERS, FEWER BUYERS CLICK HERE

WHAT IS IT...BACK TO THE 70s OR TO PRE-WWI? CLICK HERE

TECH PROPS UP THE STOXX, CONSTRUCTION DRAGS CLICK HERE

BEFORE THE BELL: RISING YIELDS KEEP EUROPE ON EDGE, FRENCH OPERATORS FALL CLICK HERE

OUR PRODUCTS COULD END ALL HUMAN LIFE, BUY OUR SHARES CLICK HERE