With six months to go before the US presidential election, US public debt is more than ever the elephant in the room. The subject is inescapable. It represents an intrinsic threat, but both Democrats and Republicans pretend to ignore it. The world's leading economic power is in dazzling form, with Europe on the defensive and China facing a problematic slowdown. But behind its undisputed financial leadership, insolent growth and rock-bottom unemployment rate, the other side of the fiscal coin is dizzying.
The public deficit is one of the main driving forces of a permanently overheated expansion. Over the last five years, the federal deficit has averaged 9% of GDP. This is four times the average since 1945, and nearly double the average for other advanced economies. In its latest projections, the Congressional Budget Office, the federal agency responsible for studying the effects of public debt on the economy, has anticipated that it could increase by 20 points of GDP to 116% by 2034. By way of comparison, the record level reached during the Second World War was 106%.
Alarmist? Bloomberg Economics believes, on the contrary, in a recent study, that the Congressional Budget Office is being over-optimistic and has concluded that the US debt is on an unsustainable trajectory to exceed GDP by 123% in 2034. Annual interest payments would reach nearly 5.4% of GDP, as much as all federal Social Security spending or even more than one and a half times the current defense budget.
Candidates will exacerbate the problem
A few weeks ago, the International Monetary Fund (IMF) warned of the systemic threat posed by the US's debt level, which at the end of 2023 stood at $34 trillion (around €31 trillion). "The fiscal stance is incompatible with the sustainability of public finances, which is particularly worrying," said Pierre-Olivier Gourinchas, the IMF's economic adviser and director of studies. "This poses risks, in the short term, to the disinflation process and, in the longer term, to the fiscal health and financial stability of the global economy. Trade-offs will have to be made," he said.
Neither of the two candidates facing off in November is prepared to make these trade-offs, treating debt as if it were the blind spot in this election. On the contrary, their programs will exacerbate the problem. While Joe Biden pledged in March to continue increasing spending, his Republican rival, Donald Trump, intends to pass massive tax cuts, continuing the policies he began during his first term.
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