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Larry Fink Warns of ‘Snowballing Debt’ Hitting US Economy

(Bloomberg) — BlackRock Inc. Chief Executive Officer Larry Fink said the US public debt situation “is more urgent than I can ever remember” and that the country needs to adopt policies to spur economic growth.

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The nation can’t rely on taxes and spending cuts to get the problem under control, Fink wrote in his annual letter Tuesday. He raised the prospect of a “bad scenario” akin to Japan’s economy in the late 1990s and early 2000s, which led to a period of austerity and stagnation.

“A high-debt America would also be one where it’s much harder to fight inflation since monetary policymakers could not raise rates without dramatically adding to an already unsustainable debt-servicing bill,” said Fink, 71.

The cost of servicing the debt has already ballooned, and the 3 percentage points in extra interest payments the US government now must pay on 10-year Treasuries compared with three years ago is “very dangerous,” he wrote.

“More leaders should pay attention to America’s snowballing debt,” Fink wrote, saying the US can’t take for granted that investors will continue to want to buy as much US debt. Foreign countries are building their own capital markets and are likely to invest domestically, he said.

“Is a debt crisis inevitable? No,” he wrote, calling for capital markets to help grow the economy through infrastructure investments, especially in the energy industry.

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