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US Debt Brings Fear

A pair of billionaires are clear there is more than a growing concern for the ever-growing US debt.

The growing number of voices are alerting us to the risks associated with the US government’s unprecedented level of debt.

Concerns regarding the amount of debt in America have been raised by Ray Dalio, the founder of the largest hedge fund in the world, and Jamie Dimon, the CEO of JPMorgan.

In an interview on May 15, 2024, Dimon expressed his desire that before financial markets compel it to, the US government would concentrate on lowering its budget deficit, or the annual difference between what it spends and what it gets in taxes.

Dimon continued, “The sooner we focus on it, the better.” “Eventually, it will lead to an issue. The market will create the issue, which you will then have to address, probably in a far more difficult manner than if you had addressed it from the beginning.

Widening deficits force the Treasury to issue more bonds in order to close the shortfall, which raises the total amount of US government debt.

According to Dalio, he was concerned about the declining interest among investors in those Treasuries, or government bonds. According to him, international purchasers who are concerned about the US financial situation and potential sanctions (against nations other than Russia) are the main source of his concerns about the decreasing demand relative to supply.

Investors may seek higher yields or returns on their Treasury holdings if they start to get nervous. The Congressional Budget Office and the International Monetary Fund have already identified this danger, which might result in increased borrowing costs for the US economy as a whole.

The Treasury Department estimates that the US government is indebted to the tune of $34.6 trillion, which is greater than the size of the US economy. Dimon and Dalio’s remarks are in line with prevailing worries about the wider hazards associated with this enormous debt.

Dimon admitted that one of the factors contributing to the world’s largest economy’s strong growth had been debt-fueled government expenditure, including epidemic stimulus.

“America invested a great deal of money both before and after COVID. Our current 6% deficit is high, but it clearly spurs growth, he remarked.  Consumer price inflation has increased as a result of the spending binge.

“I think America should be quite aware that we’ve got to focus on our fiscal deficit issues a little bit more and that is important for the world,” Dimon said. “Any country can borrow money and drive some growth but it may not always lead to good growth.”

The US government’s large and growing debt load poses a risk to global financial stability and might raise borrowing prices globally, according to the IMF last month.

The head of the CBO, the US Congress’s independent fiscal watchdog, issued an even more dire warning after the last one, stating that the US ran the risk of experiencing a bond market crisis similar to the one that beset the UK under former Prime Minister Liz Truss.

In that case, investors sold off UK government bonds as a result of effectively rejecting the government’s intention to borrow more money to finance more expenditure and tax cuts.

According to the IMF, there is indication that investors are seeking greater returns for their US Treasury holdings, in part due to their apprehensions regarding the debt trajectory. And according to the Treasury Department, since the fiscal year 2024 began on October 1, the federal government has spent $855 billion more than it has taken in.

Due to rising official interest rates, debt servicing expenses have also skyrocketed, leaving less money for public services. In fiscal year 2023, the non-profit Committee for a Responsible Federal Budget reported that the US government spent more on debt payment than it did on housing, transportation, and higher education combined.

The trend of living beyond one’s means is not exclusive to the United States. The European Central Bank anticipates that the 20 eurozone nations’ government debt will continue to rise above pre-pandemic levels.

According to a report, if European governments are forced to increase defense spending, they will become “more vulnerable to adverse shocks,” such as escalating geopolitical tensions.




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