Yes, I know that many will think that the title is sensationalist, but that does not mean that it is not true, the United States, the supposed world superpower, is in a critical situation. Its national debt has reached a historic level of $33 trillion, representing more than 150% of its gross domestic product (GDP). This figure is equivalent to more than 100 thousand dollars for each inhabitant of the country.
The worst of all is that this debt does not stop growing due to the government's uncontrolled spending, the effects and consequences left on the economy by the COVID-19 pandemic, and low interest rates. According to The Kobeissi Letter report, the United States has added 1 trillion dollars of debt since the last 'debt ceiling crisis', which was eliminated on June 3 by a project by President Joe Biden (just about 3 months) .
It should be noted that the payment of interest on the debt has become one of the worst nightmares for the North American government. It is estimated that this year it will have to disburse more than $1 trillion in interest alone, which could exceed spending on defense or social security. Additionally, the national debt is expected to exceed $50 trillion before the end of the decade.
Logically, this situation puts at risk the economic and financial stability not only of the United States, but also of the entire world. Some experts warn that we are facing the 'largest credit bubble in human history', and that it could burst at any moment (to make matters worse). Mark Spitznagelm, founder of hedge fund Universal Investments, said: "We know that credit bubbles have to burst. We don't know when, but we know they have to."
I tell you that 'credit bubbles' are phenomena that occur when the price of an asset or product is artificially inflated by speculation and indebtedness by economic agents. These bubbles typically have five stages: displacement, euphoria, mania, panic, and depression. Displacement is when a new factor emerges that attracts investor interest, such as a technological innovation or loose monetary policy. Euphoria is when prices begin to rise rapidly and an expectation of future profits is generated. Mania is when prices skyrocket and connection to economic fundamentals is lost. Panic is when investors realize that the bubble is unsustainable and begin selling en masse, causing prices to drop abruptly. Depression is when prices stabilize at a very low level and an economic and financial crisis occurs. Credit bubbles can have negative consequences for the economy and society, involving misallocation of resources, price distortion, increased systemic risk, loss of wealth and confidence, and deterioration of social well-being.
It is very likely that the enormous US debt will also affect its geopolitical position and global influence (a topic I have written about in other articles). China, its main rival, owns more than $1 trillion in US treasury bonds, giving it great leverage. In addition, this country is increasing its military presence in the Pacific, surrounding Taiwan with ships and planes, which could trigger an armed conflict. Against this backdrop, many wonder if the United States will be able to maintain its global leadership or if it will become an indebted and decadent giant.
No one will be safe, this US national debt situation has and will have negative effects on the population and taxpayers throughout the country. On the one hand, a high level of public debt can curb private investment, reducing employment opportunities and economic growth. On the other hand, greater debt implies an increase in tax pressure, which means that taxpayers will have to pay more taxes to finance debt service. This will very specifically affect the standard of living and consumption of citizens.
Furthermore, high public debt can reduce the government's social spending, which will imply a lower provision of essential public services such as education, health or security. More social inequalities and welfare problems will be generated for the most vulnerable sectors of the population. Likewise, the government's ability to implement structural reforms that improve the country's competitiveness and sustainability will be limited.
In the not-too-distant future, if the United States government does not take truly functional measures to reduce the public deficit and stabilize debt at more manageable levels, the nation could face a fiscal and financial crisis that would have devastating consequences for its economy. its population, and do not doubt it, also for the rest of the world.
Can the United States get out of this crisis or will it sink into the abyss? - We'll see.
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