The US debt problem has received increasing attention recently, especially Musk's recent remarks, in which he cited data from a report that the current interest on the US Treasury debt of $35 trillion is equivalent to 76% of the personal income tax collected by the government. Based on this data, the interest on the US Treasury debt will exceed $1.14 trillion in fiscal year 2024.
What does $1.14 trillion mean? This is a figure higher than the GDP of Saudi Arabia, a wealthy country in the Middle East, in 2023 (1.05 trillion U.S. dollars). The interest payments alone exceed Saudi Arabia's entire GDP, which is obviously a shocking fact.
Currently, the Federal Reserve is facing a dilemma. If interest rates continue to rise, the interest costs will become like usury, and banks will face huge pressure. If there is no new capital inflow to borrow new money to repay old debts, the US fiscal policy will be unsustainable and may even damage the credit of the US dollar, with disastrous consequences.
However, what if the interest rate is cut? Once the interest rate is cut, it will be equivalent to telling the world that the US economic growth rate is not as strong as expected. Previously, due to economic data that was lower than expected, the Federal Reserve had released a signal that it might cut interest rates, resulting in a sharp drop in the seven major US stock markets. The US real economy cannot accommodate too much capital, and capital can only enter the financial market through leverage.
As a result, the Fed is in a dilemma. Raising interest rates is not an option, and lowering interest rates is not an option either. So what should it do? One approach is to maintain the current interest rate by adjusting economic data, using time to gain space.
GDP growth: Although the US GDP grew by 1.6% in the first quarter, electricity generation fell by 1.9% year-on-year, which raises the question of whether the US is "burning candles" to produce electricity.
Taxation: According to the individual tax revenue calculated by the Ministry of Finance based on GDP growth, the actual individual tax revenue in April was 20% less than expected.
Labor force employment data: The California Legislative Analyst's Office released a revised employment data statistics in June, showing that California actually lost 32,000 jobs in the fourth quarter of 2023, while the data released by the federal government during the same period showed that California added 117,000 jobs. This means that the Biden administration falsely added 150,000 new jobs in California in just three months.
Therefore, the current US economy is like a gambler, with fewer and fewer cards in his hand, but he still has to hold on and not show his weakness. However, false is false after all. We must do a good job of risk isolation and wait for the final curtain of this drama.