Click to see the full-size image
Written by Piero Messina
Waiting for March Madness, it is good to clarify a concept: if the United States is sailing in a sea of debt, thanks to the Federal Reserve’s choice to become a continuous cycle money printing press, the rest of the planet – but above all the Western World – lives beyond his means. Only three days ago the International Organization for International Cooperation and Development (OECD) released data on the level of public and private debt on a global scale. The overall indebtedness of the OECD member states has reached the monstrous figure of 54 trillion dollars in 2023. To this now priceless sum must be added another 46 billion in private indebtedness: the world is a gigantic global default, a chasm of 100 trillion dollars. It was front page news. The mainstream media has relegated it to short economic news.
Analysts’ estimates confirm that the situation will worsen. The public debt of sovereign states will break the $56 trillion mark at the end of this year. In percentage terms – calculating the ratio between GDP and public debt – there are those who manage to do worse than the States: Japan, now a zombie state from the point of view of financial sustainability, Italy (with a ratio of 142 per cent percent ratio between public debt and GDP) and Greece, crushed years ago by the economic rigor hawks of Brussels.
The United States remains the leader in this ranking of financial economic madness with its 34 trillion dollars of debt, growing by a trillion every hundred days. The race for sovereign debt started in 2008 to save the banking world after the collapse of Lehman Brothers and took on new momentum with the monetary policies with which the damage caused by the lockdowns was addressed. The race shows no signs of stopping.
The United States ended 2023 with a deficit of 6.3% compared to a fifty-year average of 3.7%. In 2023, unemployment was at its lowest, GDP grew, wage increases were robust and the United States experienced a season of repatriation of industrial production with few precedents. The data on public debt and the American deficit do not go unnoticed. The comment of the Chairman of the Federal Reserve, Jerome Powell, applies to everyone: “the United States is on an unsustainable fiscal path”. Public debt issuance “cured” the bursting of the 2008 US housing market bubble. Inflation remained low until 2021 and then exploded to levels not seen for two generations as, coincidentally, the liquidity markets and fiscal stimulus in doses never seen in peacetime.
What has happened in the last three decades is not a good indicator of what will happen in the next for one simple reason. China and, secondly, Japan were two colossal engines of deflation that counterbalanced the effects of American and, in a broader sense, Western money printing. Today, trade with China is being affected by geopolitics and the restructuring of supply chains while even Japan is preparing to see wage increases to the point that to try to make ends meet it decides to double the number of foreigners eligible for skilled worker visas .
Who will foot the bill for this public debt? In Washington they have no doubt. Mr. Smith and Mrs. will pay the bill. Today the US economic and financial world is hoping for a crisis (perhaps caused by yet another proxy war) because by depressing consumption and prices it’s possible to crush inflation, justify the end of interest rate increases or their reduction and keep public debts afloat.
In geopolitics and economics coincidences do not exist. Thus, after the stop to the FBTP bank rescue program, the annual trend data for US inflation for the month of February will be released next Tuesday.
In the present intervention, a rate of 3.1% is estimated with a minimum interval of 3%; all this is due to the average price of WTI oil per barrel remaining in a range between 73 and 78 dollars, which is considered by the undersigned to be the main factor in raising the general price level, given its influence on every production and commercial sector; followed by the many disruptions to the logistics chains due to the breakdown of the product chains of global supplies of goods and finally the continued persistence of large deficits in the federal deficit; all this set of factors has as its only operational counterpart the level of Federal funds rates at 5.25-5.5%.
Public debt is a central topic in the electoral campaign which will lead to the election of the new American president on November 5th. In August, meanwhile, Fitch Ratings downgraded the country’s credit rating from “AAA” to “AA+”, due to “the constant deterioration of governance standards, including in tax and debt matters”.
According to the Congressional Budget Office’s thirty-year estimate, public debt will be equal to a record 181% of GDP by 2053. Is the US economy at risk? No, at least as long as investors are willing to lend money to the federal government and the economy continues to grow at a rapid pace the effects of the increase in debt will not have repercussions. But whose debt is that?
Today, approximately 80% of US debt is held by public investors, and 30% is in the hands of international organizations. Japan and China are the largest foreign holders of US debt, with $1,100 billion and more than $800 billion respectively.
Within the United States, debt has become a focal point of political debate. Republicans accuse Democrats of increasing the debt with excessive government spending plans, while Democrats argue that tax cuts under the administrations of George W. Bush and Donald Trump contributed significantly to the debt. Joe Biden has proposed plans to reduce future deficits by eliminating waste and imposing taxes on large corporations and high incomes.
