As U.S. Debt Tops $35 Trillion, Dollar Durability in Question
The U.S. national debt has reached an astonishing $35 trillion, making even the daily interest payments a burden. This reliance on borrowing new debts to pay off old ones has long been the traditional approach of the United States in managing its finances. With debt at such heights, can we truly say that a financial crisis is not looming?
China has long anticipated such a scenario, and it seems the United States may really need to devise new strategies this time. With the debt accumulated to this extent, what paths lie ahead? Given such elevated debt levels, will America default?
U.S. Debt Surpasses $35 Trillion
The current state of American debt is truly alarming, with the total debt soaring to $35 trillion.
Just think about this figure; it’s hard to imagine a country owing so much money.
Currently, the debt burden carried by the United States exceeds about 27% of its annual Gross Domestic Product (GDP), reaching a staggering 127% ratio.
This is no mere exercise in numbers; it starkly highlights the genuine financial pressures facing the U.S. government.
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Neither of the two major parties seems inclined to seriously consider solutions to the debt issue; instead, they are more focused on managing new debts to pay off old ones.
This approach has created a vicious cycle: new debts are used to pay off old ones, and debt ceilings are repeatedly breached, like a ticking time bomb over the international financial markets, poised to trigger a greater crisis at any moment.
Worse yet, in the past, the U.S. could barely sustain debt growth in a low-interest environment.
However, the current federal funds rate has stabilized between 5.25% and 5.5%, indicating a peak level reached over the past 22 years.
Firstly, the rising interest rates will undoubtedly trigger a significant increase in interest expenses, which have now reached an astonishing $1.6 trillion, accounting for nearly 36% of total U.S. fiscal revenue.
It is worth noting that such a massive interest payment burden greatly limits the U.S. government's ability to allocate and distribute funds for critical areas such as infrastructure construction and education.
As the debt continues to pile up, it is worrisome that future investments by the U.S. government in these crucial sectors are likely to shrink further, undoubtedly leading to profound and adverse impacts on the long-term development of American society and economy.
Should the U.S. government fail to alter its current pattern of excessive reliance on debt to stimulate economic growth, the potential issues will only grow more severe.
Credit rating downgrades and turmoil in financial markets are likely to occur in quick succession.
From a long-term perspective, such a scenario may even undermine the dollar's core status in the global monetary system, posing potential threats to global economic stability.
Therefore, the current situation is not confined to America's own predicament; its repercussions are indeed global in scope.
Other countries and international investors are closely monitoring the fiscal health of the United States, as any fiscal crisis in America could ripple through global markets.
We have truly reached a point that requires global coordination to address the situation; otherwise, if this debt "dam" breaks, the consequences would be unimaginable.
China has long been preparing, continuously selling off U.S. Treasuries, having offloaded $48 billion in U.S. debt this year alone, with expectations to further reduce holdings.
Why is U.S. debt so significant?
The $35 trillion debt total is equivalent to the combined economic outputs of China, Germany, Japan, India, and the United Kingdom.
However, for each American household, repaying this massive debt would require them to pay over $1,000 a month for a full 22 years to clear it.
Just imagine the burden such a weight would place on ordinary families; it is undoubtedly a staggering figure.
Yet, this is not merely a game about large numbers.
The deeper issue lies in the series of fundamental flaws reflected in U.S. fiscal policy.
The U.S. government has been maintaining operations by borrowing new debts to pay off old ones; while this may seem to solve problems in the short term, it is effectively raising future risks.
The continuously rising scale of debt and the gradual increase in interest rates have exerted direct pressure on fiscal funds, leading to an inability to invest adequately in vital areas such as social security and healthcare.
Experts and scholars in relevant fields predict that if this situation persists, social security and healthcare funds may face exhaustion within the next decade.
Confronted with such a scenario, U.S. policymakers seem to be trapped.
Especially this year, it seems nearly impossible for both parties to make significant concessions to resolve the problems.
The Republican Party leans towards reducing the debt burden rather than increasing tax revenues, while the Democratic Party emphasizes moderate tax increases to expand social welfare spending in order to garner more support from lower-income voters.
This political competition landscape undoubtedly adds difficulty to effective fiscal policy reforms.
However, beneath all of these surface issues lie numerous deep-seated structural problems that the U.S. faces, such as widening wealth gaps, high healthcare costs, severe challenges from climate change, deteriorating infrastructure, and unpredictable security risks.
Faced with such a multitude of problems, significant resources must be invested for proper solutions.
However, every dollar spent on debt interest means one less dollar available for investments in these critical areas.
Will the U.S. default outright?
The debt problem in America is indeed a headache.
Even the world's richest man, Elon Musk, has stated that the U.S. debt is at the brink of bankruptcy, likening this debt to a massive pit that cannot be filled.
Moreover, American traders themselves have begun to sell off Treasuries, causing yields on 10-year U.S. bonds to spike in recent days.
Look at this debt—$35 trillion—this figure is not an exaggeration; it's equivalent to several major nations' GDPs combined.
Calculating with an annual interest rate of 5%, this enormous debt would impose an annual interest cost of up to $1.75 trillion on the U.S. government.
Against this backdrop, it is crucial to deeply analyze the annual fiscal revenue of the United States; statistics show that total revenue for the year is approximately $4.4 trillion.
Astonishingly, nearly 40% of this revenue must be allocated to paying off debt interest.
However, the current interest burden has reached the limit that the U.S. government can bear; if it continues to rise, they may have no choice but to seek alternative solutions.
Just think about it—basic social security programs like social security and healthcare may also be affected, as the funds are diverted to repay debts.
The key question now is, with such high debt and interest pressures, how much longer can the U.S. hold out?
There are concerns that America might ultimately default, especially on its foreign debt.
After all, for a country, domestic debt can be resolved by printing money, though that brings forth inflation and other issues.
But foreign debt becomes problematic, as it must be repaid in the creditor's currency, which impacts national credibility and international relations.
Despite the precarious situation, America is unlikely to reach a point of outright default.
National credibility is fundamental to a country and is considered a matter of great importance.
If the U.S. takes on the stigma of defaulting, it will undoubtedly trigger severe repercussions, plunging global financial markets into unprecedented chaos, and even the supremacy of the dollar may be jeopardized.
Moreover, the U.S. government still retains a degree of policy flexibility in addressing debt issues, such as making adjustments to fiscal policy, increasing taxes, and cutting various expenditures.
However, these measures require politically decisive decision-making and extraordinary courage.
Given the current situation, the U.S. government must find ways to maintain the sustainability of its debt and prevent this issue from worsening. Nonetheless, the interplay of political games and economic balance is certainly not straightforward.
For ordinary people like us, it’s essential to pay attention to these major developments, as they pertain to global economic stability and potentially affect the lives of each and every one of us.
So, while it may seem the U.S. hasn’t yet reached a point of unavoidable default, the debt issue is indeed a pressing and critical problem.
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