The US national debt has surpassed $37 trillion, prompting concerns about its sustainability. President Donald Trump’s Big Beautiful Budget Bill is expected to add at least $3 trillion to the existing debt pile, sparking doubts among critics and economists.
Long-sown seeds of doubt have been resurfacing in recent weeks due to the weaker value of the dollar and higher interest rates demanded by investors. The dollar has fallen 10% against the pound and 15% against the euro since the beginning of this year.
US borrowing costs have remained steady, but the difference between long-term and short-term loans, known as the yield curve, has increased, signaling doubts about the country’s ability to sustain its debt levels.
Ray Dalio, founder of a major hedge fund, believes the US is at a crossroads. He estimates that the country will soon spend $10 trillion annually in loan and interest repayments, which could lead to financial trauma if not addressed.
Dalio suggests cutting the budget deficit to 3% from 6%, increasing taxes, or both could help prevent future trouble. However, Trump’s new budget bill has cut some spending but increased taxes more, pushing the current trajectory in the opposite direction.
The US central bank could print more money and use it to buy up government debt, but this could fuel inflation and inequality. A straightforward default on US debt is also a possibility, which would have severe global financial implications.
While there are few alternatives to the dollar, economist Mohamed El-Erian notes that the world has seen a rise in alternative assets like gold, euros, and pounds. Nevertheless, the future of the dollar remains a topic of high-level discussion.
The US economy’s debt-to-income ratio is significant but not unprecedented, with benefits from its innovative economy. However, experts warn that the dollar’s status as the world’s reserve currency is not invincible.
Source: https://www.bbc.com/news/articles/c1lj8rmyn5eo