What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn't Bark

If the U.S. is on a fiscally sustainable path, then higher U.S. government debt/output ratios should reliably predict higher future surpluses or lower real returns on Treasurys. We find no evidence for this. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. Instead, the future debt/output ratio accounts for most of the variation. Systematic surplus forecast errors can account for part of these findings. Since the start of the Great Financial Crisis, surplus projections have anticipated a large fiscal correction that failed to materialize