The United States of America’s debt is now around $36 trillion and still growing, making it a major source of concern. Over the last 16 years, the country’s debt-to-GDP ratio has grown seriously, positioning around 121%. According to reports, poor fiscal planning and unchecked spending are the leading cause of the increase.
Since 2008, the federal debt has grown threefold, positioning at $26.6 trillion. In comparison, the country’s economy has only grown by $14.6 trillion in the same time frame. That represents a $12 trillion shortfall, with economists noting that the worst is yet to come. According to the Congressional Budget Office (CBO), if the country avoids recession, its debt-to-GDP ratio will hit 131% by 2034.
America’s budget is being drowned by debts
America’s budget is suffering from its debt servicing. Every day, the country sets aside $1 trillion to service its debts. This year, the government is expected to offset interests with more than $1 trillion, a figure higher than it spends on defense. This means that more money goes into servicing debts compared to beefing up the military or upgrading border security. Since the COVID pandemic, borrowing has become hard, thanks to the federal reserves increased rate.
The move has pushed up costs in major markets across the country. With the debt-to-GDP ratio currently at 125%, experts predict that it could touch 200% in the next few years. This would mean that America’s debt is twice the size of its economy. If that happens, then the government will need to budget more money towards paying interest compared to other needs. Presently, each American owes $108,00, with the money being shifted away from doing important things.
Trump’s second term remains unpredictable
With Donald Trump set to assume office for his second term, experts feel there is an economic time bomb on his hands. With his administration trying to control spending, the new Department of Government efficiency will be spearheaded by Elon Musk and Vivek Ramaswamy. Musk is confident of slashing debts, proposing to cut funds going to groups for abortion rights.
However, the lingering issue that remains is that Trump is proposing more tax cuts. While Trump is proposing cutting corporate taxes to 15%, critics are saying it could be a bad move that will blow up in his face. Joint Center for Political Studies’ Jessica Fulton has opposed the move, saying it will help the rich while sinking the country into a financial hole. Even Republicans are skeptical, noting that it could be a bad idea seeing that the deficit has grown threefold.
High-interest yields are also another challenge. The country’s benchmark for borrowing is now 4.4%, a figure that was about 0.6% in 2020. It shows that the government is spending more on borrowing costs, and it is reflecting on the people too. One idea the administration wants to try is refusing to sanction the spending of Congress-approved funds. Another proposal will see funds tied to the Inflation Reduction Act cut. Although both proposal still needs to scale through legal hurdles, it is something that is needed in these dire times.
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