I’ve had some really bright people tell me that DEBT has never had any adverse effect on the United States so why worry about it.
I can’t see how that’s possible, at some threshold and convergence of domestic and international events and adversarial collusion.
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James Eagle
This is a sensitive topic – US government debt. So I’ve done a data visualisation on it.
It seems the US is at a pivotal point in its history. Over the weekend, Gita Gopinath, the IMF’s deputy managing director, urged Washington to take decisive action to reduce its debt, warning that the temptation to finance all spending through borrowing is a path that countries should avoid.
She argued that the US economy is strong enough for some fiscal consolidation. Personally, that sounds a bit painful during a cost of living crisis.
So, where do we stand? The US Treasury Market, the world’s largest and most liquid government bond market, has grown to a staggering $34 trillion. This figure is so immense that it rivals the combined economies of China, Japan, Germany, India and the UK.
The reason the US Treasury market has been allowed to grow so large is because it is widely considered a trusted safe haven asset, which is why it is commonly held as a reserve asset by central banks. Some economists argue that despite the size of the US Treasury Market, it can still absorb plenty of demand for its issuances because there are few alternatives to US Treasuries.
However, China’s attempt to diversify away from the US dollar into gold is a clear signal that even the world’s second-largest economy is nervous, either because of trade wars or geopolitical tensions.
The US government may need to act now to address this growing debt pile. Interest payments on the debt alone have become one of the fastest-growing federal expenditures, predicted to surpass military and welfare costs by 2050. For the first time in history, the interest expense on US government bonds has risen to over $1 trillion, a pivotal and alarming milestone.
Moreover, the risk of a major global war in the near future could cause this debt pile to explode even further. If such a conflict were to occur, it could tip the scales against the US dollar, exacerbating the current situation.
What are you thought here? I would love to hear. If you would like to know my personal thoughts on this subject, have a look at my newsletter: https://lnkd.in/dGxDAESC
Music: Lost It by Mimmi Bangoura, Epidemic Sounds
