By Rob Nichols

Given current Congressional Budget Office projections, there is reason to conclude that, unless significant structural changes are made to balance revenues with spending, the U.S. will probably approach a point where global market sentiment regarding the nation's fiscal condition could change abruptly for the worse.

This would make corrective action far more urgent and painful than if such steps were taken in the near term.

Failure to meaningfully address the nation's fiscal circumstances raises the prospect of dangers that could hurt the U.S. economy. Principal among these is the risk that investors could demand higher risk premiums when buying U.S. government debt.

At the current elevated debt tally, rising interest rates could quickly compound an already challenging fiscal situation. Moreover, given that Treasury bills and bonds are the basis for borrowing structures in private credit markets, the effect of burgeoning government debt on the cost of capital, economic growth and job creation would be far-reaching and decidedly negative.

Given the probable impact of higher rates on U.S. economic prospects, another risk associated with further deterioration in the nation's debt position is that investors may sour on dollar-denominated assets.

The dollar's relative value would fall, undermining Americans' purchasing power and standard of living. A falling dollar also has dangerous implications for inflation.

Finally, further deterioration in the nation's debt position would probably be associated with greater financial market instability.

The threshold beyond which investors would demand higher real yields for holding U.S. debt, or flee from dollar-denominated assets, is not obvious. This inherent uncertainty has tended to make fiscal discipline seem less urgent, or easier to postpone.

Research by Ken Rogoff of Harvard and Carmen Reinhart of the University of Maryland reveals that, throughout history, in advanced and emerging nations alike, debt-to-GDP levels surpassing 90% are strongly associated with notably slower economic growth, more frequent and severe financial crises, higher inflation and overall economic decline. America's debt-to-GDP ratio is expected to surpass 90% this year.

Some analysts argue that the United States' position in the global economy is unique and, therefore, conventional debt metrics that might signal trouble for other countries simply do not apply. It is true that the U.S. still enjoys a favored position in the global economy, but it is not immune to economic decline.

The trajectories of former historical powers make clear that failure to achieve fiscal sustainability increases the risk of financial instability. Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth.

Rob Nichols is the president and chief operating officer of the Financial Services Forum, an organization comprising the CEOs of 19 of the biggest U.S. financial services companies.