Is the risk of U.S. fiscal crisis rising?

Investing.com - The U.S. federal debt pile is "undoubtedly" on an unsustainable path, with ballooning obligations potentially leading to higher inflation and denting the wider economy, according to analysts at Capital Economics.

Treasury Department data shows that U.S. federal debt currently stands at $36.22 trillion, a burden that the Capital Economics analysts led by Paul Ashworth said is "already close to 100% of gross domestic product."

Ashworth added that, should the U.S. budget shortfall remain around 6% of GDP for the foreseeable future, the total debt-to-GDP ratio could climb to 120% within in the next decade.

"Concerns about ballooning supply have driven up the term premium component of Treasury yields further this year and there is a risk of a vicious cycle developing -- with fears about the long-term sustainability of the federal debt raising borrowing costs, which add to the deficit and make the debt path even more unsustainable," Ashworth said.

Although the U.S. government can avoid bankruptcy by printing its own money, Ashworth flagged that this tactic could result in rising inflation and "the crowding out of private investment and consumption" that may have a "negative impact on broader economic performance."

The comments come as U.S. President Donald Trump and his Republican allies in Congress are racing to approve a massive fiscal package that would include deep tax cuts and spending increases on defense and border security.

Republicans in the U.S. Senate are currently looking to release an updated version of Trump’s "big, beautiful bill," with the GOP facing a self-imposed July 4 deadline to pass the sweeping measure.

Yet lawmakers remain at odds over the spending cuts and borrowing increases that will be needed to fund tax relief and elevated expenditures proposed by the bill. Slashes to the Medicaid program for low-income Americans and clean energy tax breaks are among the most pressing points of contention.

The House of Representatives previously passed its version of the multitrillion legislation by a thin margin, with Republicans in control of the lower chamber just about overcoming party holdouts and Democratic opposition.

Should the Senate pass its version, the House would then need to approve it before a final bill is sent to Trump’s desk to be signed into law.

Tesla (NASDAQ:TSLA) CEO and former close associate of Trump Elon Musk has been among the most outspoken conservative figures to come out against the net $2.4 trillion price tag of the more than 1,000-page legislation, calling it a "disgusting abomination." The tech billionaire’s statement sparked a heated online row with Trump earlier this month.

The official Congressional Budget Office and outside economists have flagged that the bill could further increase the U.S. debt load.

Financial markets have also flagged concerns over the U.S. debt load, with Moody’s in particular citing these worries as a motive for its decision to cut its once-pristine "Aaa" U.S. credit rating. The legislation would raise the U.S. debt ceiling by $5 trillion, a move that Congress must adopt or risk the U.S. defaulting on its debt obligations.

However, Trump and other Congressional Republicans have largely shrugged off these fears, with Senate Finance Committee Chairmain Mike Crapo arguing that any argument that the bill will increase the U.S. deficit is "absolutely wrong."