Raising Public Debt Will 'Turn Into Catastrophe for US'

Olivier Blanchard, the former chief economist at the International Monetary Fund (IMF) and a Senior Fellow at the Peterson Institute, called on the US to make efforts to reduce its national debt or at least to prevent it from increasing.

Otherwise, according to the economist, the US economy may face disastrous consequences.

The US is doing much better than many other countries, but taking into account the gradual debt increasing fiscal restrictions on foreign investments cannot be ignored, Blanchard said during a discussion at the Brookings Institution.

According to the Federal Reserve Bank of St. Louis, in July 2015, US public debt was 100.5 percent of GDP. In the beginning of 2016, the debt was $18.9 trillion. Congress said the debt ceiling may be increased to 19.3 for the fiscal year of 2016. According to the US House Committee on the Budget, US debt may reach 120 percent of GDP by 2040.

"If nothing is done it will be a problem. The goal should be decreasing debt/GDP ratio or at least preventing the debt from increasing. There is no urgency though. Currently, risks are small and we can do it slow," the expert explained.

However, he added that the situation in some European countries proved that no actions at all would result in catastrophic consequences.

In order to reduce debt, the public fiscal policy and the Federal Reserve with a solid stance on raising interest rates are crucial, he concluded.