The United States has reached a staggering debt level of approximately $34.6 trillion as of April 8, 2024, translating to about $102,976 per capita. This milestone marks a significant moment not just for the U.S., but for global economies interconnected with it.
A recent report from the U.S. Congressional Budget Office (CBO) highlights a troubling trend: the publicly held debt to GDP ratio is expected to climb from 97% in 2023 to 107% by the end of 2029. By 2034, projections suggest this ratio could skyrocket to 116%, and an alarming 166% by 2054, surpassing the historical peak observed just after World War II.
The CBO attributes this surge to several key factors, including increased spending on social security, rising interest payments, substantial stimulus checks during the COVID-19 pandemic, and extensive investment packages introduced under the Biden administration. Additionally, the 2017 Tax Cut and Jobs Act, enacted during Donald Trump’s presidency, is projected to reduce federal revenue by $1.8 trillion until 2027.
Unsustainable Path Ahead
Phillip Swagel, Director of the CBO, has raised concerns that the U.S. might face a market shock similar to what the UK experienced during former Prime Minister Liz Truss' brief tenure. While Swagel reassures that the U.S. hasn't reached that tipping point yet, he warns that continuing debt growth could lead to higher interest rates, significantly impacting the country's fiscal trajectory.
Bloomberg Economics conducted one million simulations considering various variables, finding that 88% indicated the debt-to-GDP ratio is on an \"unsustainable path.\"
Investment Crowding and Economic Slowdown
The escalating national debt is putting immense pressure on interest payments, which could eventually \"crowd out\" both public and private investments. In fiscal year 2023, net interest payments reached $659 billion, or 2.4% of GDP, marking a 38% increase from 2022. By 2032, these payments are projected to soar to $1.2 trillion, potentially becoming the largest federal spending category over the next three decades.
This debt-interest spiral could force bond buyers to demand higher yields due to increased risks, creating a vicious cycle that further burdens the economy. Additionally, higher interest rates would elevate financing costs for businesses, leading to layoffs, reduced budgets for research and development, and postponed investments in new projects. The ripple effects could result in slower wage growth, fewer training opportunities, diminished business revenues, and heightened social divisions, ultimately affecting global economic stability.
As the U.S. grapples with its mounting debt, the global community watches closely, understanding that the nation's financial health plays a pivotal role in shaping international markets and economic trends.
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America's mounting debt sends shockwaves to U.S. and global markets
cgtn.com
