An Analysis of the Sustainability Issues of U.S. Treasury Bonds—A Study Based on the Vector Error Correction Model and Trend Forecasting

Guoqiang Ma () and Yiniu Cui ()
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Guoqiang Ma: Yunnan University
Yiniu Cui: Yunnan University

Journal of the Knowledge Economy, 2025, vol. 16, issue 1, No 26, 713-738

Abstract: Abstract Based on the fiscal and economic data of the United States from 1962 to 2022, this paper first studies and analyzes the long-term equilibrium relationship and short-term fluctuation relationship among the three variables of the U.S. federal government debt, the federal government fiscal surplus (deficit), and the U.S. economic growth through the vector error correction model (VECM), then it makes a judgment of the historical performance of the federal government’s fiscal sustainability by using the financial sustainability conditions that derived from present value budget constraints, and at last, it infers the medium- and long-term sustainability of federal debt in the future through the trend forecast of federal government’s debt-to-GDP ratio under the different relative interest rate levels of the federal debt. The results indicate that, based on historical data, the fiscal sustainability of the federal government has shown positive performance. In the short term, federal finances remain sustainable, but the medium- to long-term sustainability would depend on the relative interest rate levels of the future federal government debt. However, considering the current environmental factors comprehensively, the medium- to long-term fiscal situation of the United States appears less optimistic. The subpar performance of fiscal discipline by the federal government and the political governance dysfunction caused by partisan conflicts makes it increasingly difficult to effectively control fiscal deficits. The debt financing model of “borrowing new debt to repay the old” is unsustainable in the long run. The United States is clearly entering a rising interest rate cycle, and the likelihood of continued increase in relative interest rates for U.S. Treasury bonds is higher. This raises concerns about the future medium- to long-term sustainability of U.S. Treasury bonds.

Keywords: United States; National debt; Sustainability; Vector error correction model (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13132-024-01960-7

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