"The most predictable crisis" - U.S. debt exceeds $35 trillion and continues to rise

"Economic growth cannot keep up with debt inflation", "heavy burden on future generations", "the United States is heading for bankruptcy"... Amid concerns from all walks of life, the scale of the U.S. federal government debt has broken through another psychological barrier: the latest data released by the U.S. Department of the Treasury on the 29th showed that the total amount of U.S. debt reached 35 trillion U.S. dollars for the first time, equivalent to the total economic volume of China, Germany, Japan, India and the United Kingdom.

The reporter sorted out the historical context of U.S. debt and found that the United States relied on the hegemony of the U.S. dollar to accumulate debt. The scale of debt has soared on the "unsustainable path" under the connivance of the ineffective political system and the promotion of failed economic governance, and has been constantly biting itself and poisoning the world. Some economists and historians worry that the current US debt level has exceeded many dangerous indicators, posing hidden dangers to the future of the United States and even the world.

Debt "soaring" interest is alarming

"The United States must maintain economic growth to repay its debts, otherwise it may pass on a huge and unbearable burden to future generations." Larry Fink, CEO of global asset management giant BlackRock, recently commented on the US debt risk.

In recent years, the US economy and debt trends have shown a clear contrast: the overall economic growth rate has continued to be sluggish, but the overall debt level has accelerated.

On May 29, 2023, people passed by the "National Debt Clock" in Manhattan, New York, the United States. The "National Debt Clock" is a large counter that updates the total amount of the U.S. public debt in real time and shows the amount that each American family has to bear. Photo by Xinhua News Agency reporter Liu Yanan

The U.S. government has been borrowing heavily since the 1980s. In 1985, the United States changed from a net creditor country to a net debtor country. Since then, the scale of debt has continued to rise, and in recent years it has shown a rapid growth trend. It exceeded 20 trillion U.S. dollars in September 2017 and exceeded 30 trillion U.S. dollars at the end of January 2022.

Since June 2023, the US debt has been increasing at a rate of about $1 trillion every 100 days: in June 2023, the scale of federal government debt exceeded $32 trillion, reaching this figure nine years earlier than the forecast before the COVID-19 pandemic; in September 2023, the scale of US debt exceeded $33 trillion; in December 2023, this figure reached $34 trillion, five years earlier than the forecast of the US Congressional Budget Office in January 2020.

The rapid increase in the scale of US national debt has directly led to a corresponding increase in interest payments in the future. Data shows that debt interest payments are expected to become the fastest growing part of the federal budget in the next 30 years.

According to the U.S. Congressional Budget Office, by 2033, U.S. Treasury interest payments will triple from nearly $475 billion in 2022 to more than $1.4 trillion. By 2053, U.S. Treasury interest payments are expected to soar to $5.4 trillion. This will exceed U.S. spending on social security, health insurance, and Medicaid.

Behind the soaring U.S. debt and huge interest rates is the U.S. economy, which is out of touch with reality. On the one hand, some of the U.S. official economic data and market performance are "bright"; on the other hand, high debt, high interest rates, and high prices are rare in history. The outstanding contradictions in the economic field pose a serious challenge to the US economic governance.

The Wall Street Journal wrote that since the Biden administration came to power, prices have risen by 20%, and wage increases have not kept up with the speed of soaring prices. In addition, the epidemic has caused changes in people's lives and working methods, as well as the increasingly intensified polarization, which has created a general sense of instability.

With the scale of US debt exceeding 35 trillion US dollars, this issue has become the focus of public opinion in the United States. Jerome Powell, chairman of the US Federal Reserve Committee, said that it is time to talk about this issue "with an adult attitude."

Who is to blame for the "most predictable crisis"?

"The United States is heading for bankruptcy." This is Musk's latest assessment of the U.S. debt problem.

Many chaos in the U.S. economy and finance have been criticized by the outside world, and debt is one of the problems with the clearest path and the most direct consequences. JPMorgan Chase CEO Jamie Dimon even called the U.S. public debt the "most predictable" crisis facing the U.S. economy.

In the early 1980s, the Reagan administration's policy measures, centered on large-scale tax cuts, caused the U.S. government to have an unprecedented budget deficit in peacetime, and federal debt began to rise rapidly. During the Clinton administration, the United States achieved a short-term federal government budget surplus through austerity policies, but since then, the government budget and federal debt issues have become further politicized, and debt has increasingly become a "bargaining chip" rather than a "problem", and the Democratic and Republican parties have been playing games over this issue to this day.

Analysts point out that the Democratic and Republican parties are to blame for the out-of-control US debt. Both parties are reluctant to "put the brakes" on this issue for political considerations, especially against the backdrop of the presidential election, and it is even less likely that the two parties will come up with practical policies to cut spending and control debt. The New York Times noted that US Vice President Harris, who has basically secured the Democratic presidential nomination, and Republican presidential candidate and former President Trump rarely talked about the debt problem during the campaign, and both parties opposed cutting social security and medical insurance, which are the biggest drivers of debt, indicating that the debt problem will only worsen in the next few years.

Barry Bosworth, a senior researcher at the Brownings Institution in the United States, believes that neither party has a plan to stabilize the future budget situation.

The British weekly The Economist recently published an article saying that no matter who wins the US presidential election in November, the US fiscal situation in the next four years is likely to deteriorate further, and neither the Democratic Party nor the Republican Party has a practical plan to solve this problem.

Debt out of control puts the US on a "dangerous track"

The US continues to raise new debts to repay old debts, and its "confidence" comes from the US dollar hegemony. Relying on the US dollar hegemony, the US transfers its own risks and reaps global wealth through interest rate increases and decreases. However, the long-term debt addiction makes the US unable to change its wasteful habits of "living in advance and eating in the next year", thus sowing the seeds of crisis. Economists and historians believe that some new dangerous indicators have appeared in the US debt data, which may further impact the US financial hegemony.

According to the current interest rate level, the US federal treasury will pay up to 870 billion US dollars in debt interest in 2024, exceeding military expenditure for the first time, and the total interest next year will exceed one trillion US dollars.

Niall Ferguson, a professor of history at Harvard University in the United States, recently stated in an article that in history, any major power will not remain strong for a long time as long as its debt repayment costs exceed its defense expenditures. "This was true of Habsburg Spain, old-regime France, the Ottoman Empire, and the British Empire. Starting this year, the United States will be tested by this law."

As the U.S. national debt approaches $3.5 trillion, analysts at JPMorgan Chase & Co. said in a new memo to investors that growing debt and deficits will limit the U.S.'s "fiscal flexibility" and the government's ability to respond to future economic recessions, according to U.S. media reports. The U.S.'s ballooning deficit and high sovereign debt levels pose potential risks. Investors should not expect any significant improvement in the U.S. fiscal outlook in the short term.

JPMorgan Chase CEO Jamie Dimon said the US should pay more attention to the fiscal deficit problem because it will have an impact on the whole world, and "someday there will be problems."

Debt is related to national credit. Out-of-control debt has also caused more and more countries and institutions to re-examine the status of the US dollar as the world's main reserve currency and the image of the United States as a reliable borrower. The US sovereign credit rating, which has long been ranked at the highest level, has been "downgraded" by international rating agencies many times in the past 10 years. In August last year, the international rating agency Reputation downgraded the US long-term foreign currency issuer default rating from AAA to AA+ due to "continuous deterioration of governance."

Desmond Rachman, an economist at the American Enterprise Institute, said that the "dangerous track" of the US public finances poses serious problems for the dollar and the long-term inflation outlook. If at some point in the future, foreign investors believe that the US government has no real intention to control debt, they may no longer be willing to provide funds to the US government, which will lead to a dollar crisis.