Steep budget deficit would come back to haunt the US, says Ruchir Sharma

The US keeping a steep budget deficit in proportion to its GDP would come back to haunt the country one day, Rockefeller International chairman Ruchir Sharma said on Wednesday.

The US was moving away from the low and sustainable budget deficits it maintained for long, said the well-known author and fund manager in a conversation with Infosys chairman Nandan Nilekani at the Bangalore International Centre. Sharma shared his thought on a range of subjects including the movement of capital, technology, the developing world while discussing on the topic What Went Wrong with Capitalism.

Under Bill Clinton, the average budget deficit in the US was around 3% of GDP, in line with the GDP in other developed countries. The US maintained these levels for 20-30 years, but the trend has been shifting, and the US today has a 6% deficit. This is higher than the average of other developed countries, he said.



Both the Presidential candidates, Sharma added, were saying deficits don’t matter. While Kamala Harris was advocating more spending, Donald Trump wants to cut taxes. The push towards higher deficits would come back to haunt the country one day, he warned.

One of the biggest advantages the US had was its currency being used as reserves by the rest of the world. China, accounting for 18% of the world’s GDP, could have taken over some of the reserve currency status, but that did not happen as it ran a closed capital account, he said.


The property and stock prices have exploded, a source of major grievance., in the US. Asset price inflation particularly will have a negative consequence. About 20 years ago, one could buy a home and repay the loans in 3 years, but today it takes about 18 years. There has been a huge demand, but the supply is constrained, he said.