US congressional oversight director cautions of market shock amid growing debt accumulation

(MENAFN) Philip Swagel, director of the US Congress's independent financial oversight agency, has raised concerns about America's vulnerability to a market shock similar to the one experienced by Britain following Liz Truss's "mini" budget approval in September 2022. Swagel's warning, conveyed in an interview with the Financial Times last March, aims to emphasize the risks associated with unchecked debt accumulation rather than predict an imminent collapse.

Swagel's reference to the British experience underscores the potential consequences of fiscal policy decisions on market stability. Truss's budget approval triggered a sudden surge in British government bond yields and sparked turmoil in financial markets, serving as a cautionary tale against complacency and inaction in addressing mounting debt levels.

The director's apprehensions are grounded in America's increasingly unsustainable debt trajectory. The Congressional Budget Office forecasts that the US debt-to-GDP ratio will surpass its World War II-era peak, reaching 106 percent by the end of the current decade, with a continued upward trend thereafter. This projection reflects a significant departure from historical norms, with the total deficit expected to average 5.5 percent of GDP through 2030, approximately 2 percentage points higher than the post-1940 average.

Of particular concern are net interest payments, which currently account for around 3 percent of GDP and are projected to escalate further. Swagel's warning highlights the urgent need for proactive measures to address fiscal imbalances and rein in the mounting debt burden. Failure to act decisively risks exposing the US economy to heightened volatility and adverse market reactions, underscoring the imperative of addressing fiscal challenges in a timely and prudent manner.



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