BlackRock's Larry Fink is worried about 'snowballing' U.S. debt. Here's how soon it could hit a record.

By Robert Schroeder

Larry Fink is worried about what he calls the U.S.'s "snowballing debt." He's not alone, with Washington number crunchers seeing it hit a record in as little as five years.

In his annual letter to BlackRock Inc. (BLK) investors, the chairman and chief executive of the investment-management company said: "More leaders should pay attention to America's snowballing debt.

"There's 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."

Fink's concerns echo those of a recent analysis by the nonpartisan Congressional Budget Office, which projected that debt held by the public would reach its highest level ever in 2029, at 107% when measured as a percentage of the economy. By 2054, it would reach 166% of the economy, the CBO said in its March 20 estimate.

The BlackRock chief and the CBO both warned of the risks of servicing that debt. Under the CBO's scenario, the cost of interest payments on the debt will double by 2054, to 6.3% of GDP. Add in rising costs for programs like Social Security, and there are "significant risks to the fiscal and economic outlook," the agency said.

The CBO's report was released before President Joe Biden signed into law a $1.2 trillion package of spending bills on March 23, ending the threat of a government shutdown.

Combined with a separate package, discretionary spending for the budget year will come to about $1.66 trillion. But, as the Associated Press noted, that does not include programs such as Social Security and Medicare, or financing the country's rising debt.

Read: Biden signs $1.2 trillion funding package after Senate's early-morning passage ended shutdown threat

The spending package largely tracks with an agreement that then-Speaker Kevin McCarthy of California worked out with the White House in May 2023, which restricted spending for two years and suspended the debt ceiling into January 2025 so the federal government could continue paying its bills.

In his letter, Fink said a debt crisis is not inevitable. He said the issue can't only be solved through tax hikes and spending cuts, and called for "pro-growth policies" such as infrastructure PAVE investments, especially in the energy sector.

Biden and former President Donald Trump, the presumptive Republican presidential nominee, are poised to clash over programs like Medicare and Social Security as the November election approaches. To shore up Medicare, Biden is proposing to increase taxes on people earning more than $400,000 a year.

Trump, meanwhile, quickly backtracked on comments he made suggesting cuts to Social Security and Medicare. But some of his fellow Republicans in Congress are keeping the issue alive by proposing a budget that would slash $2.7 trillion from combined spending on Social Security and Medicare over the next decade, or more than 8% of the total, as MarketWatch's Brett Arends has reported.

Opinion: House Republicans undermine Trump with call for $2.7 trillion in Social Security and Medicare cuts

The Associated Press contributed.

-Robert Schroeder

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03-27-24 1318ET

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