The United States’ national debt has surpassed $40 trillion. While that is a new milestone for the world’s largest economy, economists see it as a warning sign. They fear that as the debt grows, the cost of servicing its interest is rising just as fast, increasing financial pressure on the government while also potentially affecting the cost of borrowing for ordinary people.
According to a BBC report, the U.S. national debt stood at just under $20 trillion when Donald Trump first became president in 2016. It has doubled within a decade. The country’s debt is now growing by roughly $90,000 every second, or about $7.8 billion a day.
U.S. debt first reached $1 trillion in 1981, a milestone that was seen as a warning sign at the time. Economist Maya MacGuineas said that in the country’s 250th year, the United States is now spending more on interest payments alone than the entire $1 trillion debt of that earlier era.
Why so much debt
There has long been a large gap between U.S. government revenue and spending. Spending has risen on Social Security and various other government programs, while tax cuts have reduced government revenue. The government has also had to take on enormous debt to respond to crises such as the 2008 financial crisis and the Covid-19 pandemic.
Added to this is the high interest rate used to control inflation. With interest rates elevated, the cost of servicing both old and new government debt has also risen.
According to economist Eric Swanson, the biggest difference between the current situation and a decade ago is the interest rate. Long-term interest rates in the United States are at their highest level in decades, driven partly by inflation concerns and partly by the government’s excessive borrowing.
Interest payments are a major burden
Government spending on debt-interest payments is now 15 percent higher than the same period last year. According to economist Mohamed El-Erian’s estimate, about 20 percent of the government’s total tax revenue is now going toward interest payments on debt — more than the country spends on defense.
As the debt grows, the U.S. government has to pay higher interest to take on new debt, because investors are demanding higher returns to lend money by buying government bonds.
Another factor is the massive investment technology companies are making in artificial intelligence. These companies are also borrowing large sums, creating competition between the government and technology companies for investors’ money.
Not a crisis yet, but a warning sign
The size of the U.S. debt is about 126 percent of the size of its economy. That ratio remains lower than in some other developed countries, such as Japan and Italy. In addition, because the United States is the world’s largest economy and the dollar is the world’s primary reserve currency, the country can carry a large debt burden for longer than many other nations.
Even so, economists do not consider the situation entirely reassuring. In El-Erian’s words, it is not yet a “red signal,” but rather a “yellow signal” — meaning the situation has not reached a crisis point, but the time has come to be cautious.
Economists fear that at some point, investors could turn away from U.S. government bonds. That could increase bond sales and create major turmoil in financial markets. However, it is difficult to say with certainty at what point such a situation might arise.
Effects could reach ordinary people
The impact of the government’s growing debt burden will not be confined to government accounts alone. If high interest rates persist, rates on home loans, car loans and credit cards could also rise, putting particular pressure on lower-income people.
In addition, if businesses borrow at higher interest rates, they may pass that added cost on to consumers through higher prices. As a result, the burden of the debt could ultimately be felt in the cost of living for ordinary people as well.
What the US might do next
The U.S. economy has slowed somewhat in recent months, though it is still growing. If that growth continues, government revenue will rise, making it comparatively easier to manage the burden of debt and interest payments.
But if growth is not strong enough, the government may have to make difficult decisions, including tax reform, cutting government spending or austerity measures. In an extreme scenario, debt restructuring could also come into play.
The U.S. Treasury Department recently took an initiative to buy back some government debt bonds. That temporarily increased demand for the bonds and lowered borrowing costs. But just a day later, long-term borrowing costs rose again.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report