The United States has recently crossed a significant milestone in its economic landscape: the federal government debt has surpassed the $35 trillion mark, making it the largest public debt in the world in absolute terms. While this figure is staggering, it's important to contextualize it within the debt-to-GDP ratio, which stood at approximately 123 percent in 2023. This ratio, although substantial, remains below that of countries like Japan and Italy.
What makes the growth in U.S. public debt particularly intriguing is that it has continued to rise during a period of economic strength. Republicans attribute this surge to what they term \"reckless\" public spending under the Biden administration. On the flip side, Democrats counter by highlighting the \"reckless\" tax cuts implemented during the Trump era, which also contributed to the burgeoning debt.
However, both perspectives, while partially accurate, often overlook a crucial factor: the international status of the U.S. dollar. As the global reserve currency and the primary medium for international trade, the strength of the dollar has far-reaching implications. This elevated status inflates the value of the dollar relative to other currencies, leading to a scenario where domestic production struggles to meet domestic demand, resulting in a trade deficit.
Countries facing trade deficits typically have two pathways: accept higher unemployment due to reduced domestic production or incur higher debt to sustain employment and demand. The United States has consistently chosen the latter, opting for higher debt as a politically and economically more palatable solution. This strategy not only supports domestic employment but also reinforces the dollar's dominance by injecting more dollars into global trade and accumulation, creating an entrenched cycle.
This extensive budget deficit has significant implications for the global economy. On one hand, the U.S.'s large budget deficits bolster domestic demand, which in turn expands the trade deficit with the rest of the world. This increased demand for imports supports foreign economies by providing a steady market for their products, thereby contributing to global economic growth.
Understanding the interplay between the United States' public debt and its role in the global economy offers valuable insights into the complexities of international finance and economic policies. As the U.S. continues to navigate its debt trajectory, the ripple effects of its decisions will undoubtedly shape economic landscapes both domestically and internationally.
Reference(s):
U.S.'s record debt: Global currency status and economic consequences
cgtn.com
