Reuters
The US debt has soared in recent years, and with no solution proposed by either presidential candidate, it will likely hit unprecedented levels that could spur a crisis, former FDIC Chair Sheila Bair said.
Surging debt levels could cause the next financial crisis if left unchecked, Bair warned. Bair, who chaired the FDIC during the global financial crisis of 2008, said the government employed deficit-financed spending and tax relief during past crises in 2008 and during the 9/11 terrorist attacks of 2001.
At the time, those were correct decisions, but the government has kept up that level of spending since, driving up the debt and creating a risk to the economy.
"Now, the resulting overhang of federal debt could itself be the cause of a future crisis," Bair wrote in an op-ed last week.
What's more, Bair said both presidential candidates lack plans to fix the debt, and their proposals will likely continue to drive government borrowing to sustainable levels. That raises the risk of a scenario in which global investors lose faith in the country's ability to pay its debt, eroding confidence in the hugely important US Treasury market.
Investors could demand higher premiums, driving up the government's interest payment, which could forced tax hikes, spending cuts, and Treasury losses, Bair says.
Those factors would cause widespread economic distress, she said.
"Both parties have decided that deficits don't matter anymore, which is pretty distressing because they do. At some point we're going to reach the inflection point, and they're going to matter a lot to investors who are going to question if they want to keep buying our debt," Bair told CNBC in a Monday interview.
The gross national debt has topped $35 trillion. Trump's proposed policies would pile on a whopping $7.75 trillion in the next 10 years, while Harris's plans would add $3.95 trillion, Bair said, citing findings from the Committee for a Responsible Federal Budget.
Bair says the debt problem is getting little attention in this election cycle because to solve the debt crisis, the candidates would likely need to hike taxes or lower spending on social programs — neither of which would be popular among voters.
"There's no political payoff for it. People don't want to hear that their taxes are going to go up, or their benefits are going to go down," Bair told CNBC. "And even if you go and make those hard decisions and institute some reforms, the next generation of leadership could come in and just squander it all, so I think politicians have just decided it's not worth it."
She said leaders need to take a bipartisan approach to avoid any political fallout, working shore up social security, reduce the deficit, and reform the tax code.
"You have to lock arms and do it," she said. "That's what happened in the 1980s, and I'm hoping that's what can happen again. We need for it to happen again."
