US Debt Moving Toward $50 Trillion Isn't Whole Story

(MENAFN- Asia Times) WASHINGTON – The most disturbing thing about forecasts that the US national debt will hit $50 trillion by 2034 is that the true figure surely will be much bigger.

The Congressional Budget Office noted that the federal debt will hit 122% of gross domestic product a decade from now, dwarfing America's fiscal position after World War II. Funding the biggest drivers – defense, social safety net outlays and giant tax cuts unmatched by revenue increases – will only become costlier over time. Never mind if a deep recession or serious military conflict further alters this trajectory.

This slow-motion economic disaster could be sped up by political squabbling or by de-dollarization efforts among top emerging markets.

Case in point: the November 5 US election. Even if Donald Trump loses to current President Joe Biden, there's a zero-percent chance the former US leader and his army of supporters go away quietly. The risk of a Capitol Hill insurrection 2.0 looms large. The earlier one, on Jan. 6, 2021, provoked Fitch Ratings to revoke Washington's AAA rating. Might the next prod Moody's Investors Service to yank away the last AAA?

Nor are Biden's China tariffs buttressing global faith in the dollar or US Treasury securities, of which Beijing holds nearly US$700 billion. Those tariffs include a 100% tax on China-made electric vehicles.

Such moves won't prod Detroit to make the better automobiles that consumers in Europe, Asia or even many Americans want. They won't raise America's innovative game. They won't increase Chinese leader Xi Jinping's desire to work with Washington on climate change, military-to-military communications, counternarcotics, AI-related risks or even just basic economic cooperation.

Biden has intensified Washington's sharp mercantilist pivot since 2017. Then-President Trump slapped huge tariffs on Chinese goods and on global steel and aluminum. When Biden arrived, he left Trump's trade war in place - and continued to add new layers of China-targeted curbs.

Now, as Trump threatens 60% tariffs on all Chinese goods, Biden is trying to out-do Trump. This trade-tax arms race is drawing retaliation threats from Xi's government. It also has Global South countries viewing the US less and less as an adult in room when it comes to economic and geopolitical affairs.

The most obvious example of disillusionment over US fiscal excesses is the pivot away from the US dollar . The predicament is made worse by the bull market in political polarization in the halls of Washington power as the US debt hits $35 trillion.

“The current fiscal trajectory could eventually push the debt-to-GDP ratio to a point where stabilizing it would require a fiscal surplus of a size that has rarely been sustained historically,” says economist Manuel Abecasis at Goldman Sachs.“And while the conditions for a fiscal consolidation to succeed are currently in place in the US, there is little political momentum for deficit reduction.”


Asia Times

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