Moreover, diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. In a vicious circle, high and rising interest rates would cause debt-service payments on the federal debt to grow even faster, causing further increases in the debt-to-GDP ratio and making fiscal adjustment all the more difficult.
How much adjustment is needed to restore fiscal sustainability in the United States? To help answer this question, it is useful to apply the concept of the primary budget deficit, which is the government budget deficit excluding interest payments on the national debt.