The U.S. government’s debt has reached an eye watering $35.3 trillion, carrying an interest payment of $3 billion a day at current interest rates.
Check out USDebtClock here for all sorts of interesting information.
The interest charge has doubled since 2020 due to massive government spending during the COVID War and the U.S. Federal Reserve’s campaign of interest rate hikes to fight inflation. Going from 0.5% in March 2022 to 5.5% July 2023.
You can see why the Fed will be cutting rates next week.
Interest-rate futures speculators are betting the Fed will take a full percentage point off its key interest rates by the end of this year.
However, that relief is likely to be only temporary. Both Trump and Harris have pledged tax cuts and new spending if they take the White House next year. Neither is sustainable, JPMorgan economists said;
Irrespective of the election outcome, the trend since the [COVID War] has been profligate fiscal policy that is absorbing substantial amounts of capital.
At the same time, the en masse retirement of Baby Boomers is shifting a substantial share of the population from a high-savings period in life to a low-savings period, depressing the supply of capital.
The analyst Lyn Alden writes that the US is in the process of entering fiscal dominance. I once heard Rob Kirby remark that there was no end to the money they would draw on.
Of course the debt problem dates back decades and has been growing under both parties. Over bloated military budget, inefficient healthcare, underfunded social security, creation of a wealth divide. In addition as the debt has piled up so has accumulated interest.
For the past four decades the US had a rising debt/GDP ratio, but falling interest rates. This meant the debt was manageable because the interest payments were kept low compared to GDP. The situation has now reversed and that is very big news.
What politicians are hoping for is productivity to offset price inflation. They are especially looking to AI. This will have the result of slowing inflation but its likely to be ongoing sticky as it comes in waves or rises in certain sectors.
The debt will continue to grow, no doubts on that front, no austerity here (unlike the UK). However it will cause the dollar to weaken at a time when the BRICS grow stronger.
The US is in a sad state of affairs judged by this matrix. A shrinking middle class, deep poverty and homelessness, and rotten infrastructure. Meanwhile in the election it has failed to raise as an issue at all, yet this debt burden will impact all but the very rich.