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As America’s Total National Debt Rises Up to $34 Trillion, the Finance World Closely Watches as the Leading Economy Paves a Path of Economic Instability

On Tuesday, the Treasury Department of America came out with a report stating that the nation’s public debt currently stood at $34 trillion. Financial experts and analysts have stated that the American society is slowly going bankrupt as the collective public debt keeps increasing every year.

Now experts have predicted that the American government is at a high risk of facing bankruptcy as previous interest rates have soared to higher levels. Furthermore, over the years, foreigners have become increasingly reluctant to add to large US government bond holdings. Rating agencies across the US have warned that unless the government decided to change their policy’s direction, a situation could arise in the future where they, as rating agencies, would be forced to downgrade the nation’s overall credit rating.

The country’s public finances are baffling to finance experts and analysts across the world. American finance experts have expressed their concerns over how the nation’s debt as a percentage of GDP is now almost at the same level which the nation experienced during the end of World War 2. In addition to this, the country continues to run exceedingly large budget deficits that will add further digits to an already soaring debt level. Currently, the American society stands face to face with the problem of unemployment while managing to run a deficit of approximately 6% of the nation’s GDP.

A Walk Towards a Clouded Future

The Congressional Budget Office has warned that based on current governmental policies, the deficit is likely to stay here for the distant future, and with the current polarized state of the American government, experts fear that no positive can be expected in the near future. According to various financial reports from multiple sources across the nation, interest rates are currently stationed at a lower-than-average level. The reason behind this is the massive amounts of Treasury bonds bought by the Federal Reserve to keep the economy afloat during the COVID pandemic.

Moreover, the increased cost of servicing the debt only further enlarges the pre-existing deficit and hence, puts the nation at a risk of increasing the debt at an exponential rate. Backing up this point is the increased in rate of the 10-year Treasury bond. The rate went moved from less than 1% in 2020, to a record high of 4% as of recent. This was the direct result of Fed trying to control inflation. Unfortunately, experts believe that interest payments will only put more strain on public finances as more time passes by.

Inflation, Debt, and Uncertainty 

In more simpler terms, in order to control inflation in future, the Fed will keep the interest rates higher than usual. Furthermore, foreign governments will most likely further reduce their large US government bond holdings, especially in a situation where credit-rating agencies downgrade the American government’s credit score. However, this doesn’t imply that the United States would default because unlike other foreign governments, which finance themselves in foreign currency, the US government finances itself on dollars.

This gives the Fed an opportunity to print the dollars and meet the government’s borrowing needs if international creditors refuse to lend any further. The downside, however, is that would lead to an imminent dollar crisis and an inescapable increase in inflation. Experts have suggested that the only way to get out of this mess is to spend less.

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