Debt ceiling suspended, but challenges persist
|A recent opinion piece in Bloomberg highlighted that the latest budget deal successfully suspended the debt ceiling, averting a potential debt default. However, it also pointed out that this measure does little to address the United States’ long-term fiscal challenges, as US deficits continue to accelerate.
Escalating US debts
According to the Congressional Budget Office, the US is projected to have deficits exceeding 5% of its Gross Domestic Product, for an extended period. In the next decade alone, the country’s total debt is expected to reach approximately $20 trillion. Despite the recent agreement, this reduction is a mere $1.5 trillion. The debt-to-GDP ratio, which compares the US debt to its income, will continue to rise and is estimated to reach around 115% by 2033, with further increases projected beyond that. By the middle of the century, US debt could potentially approach 200% of the public debt-to-GDP ratio.
Concerns and projections
The aforementioned Bloomberg article highlights that these projections are somewhat optimistic, as they do not account for potential events like another global financial crisis or urgent needs for investment due to factors such as global warming. These factors could significantly impact the US debt landscape and necessitate additional financial measures.
Where does that put the US in the G20 rankings?
Among G20 nations, the United States currently holds the second-highest debt-to-GDP ratio, second only to Japan. However, it is crucial to note that Japan’s ratio stands at a significant 264%, making it an outlier in this regard. Japan has managed to finance its debt due to its large domestic investor base, strong savings culture, and intervention by the Bank of Japan in the bond market. Nevertheless, the long-term sustainability of Japan’s debt remains a concern.
The larger the US debt becomes, the more and more concerns there will be surrounding how that debt is managed. Expect this to become more and more of a focus in US politics moving forward, but for now, there is no immediate danger for the US from its high debt-to-GDP ratio.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.