Governments owe 91 billion dollars (about 84 billion euros), which is comparable to the size of the world economy and will ultimately seriously affect their populations.
The debt burden has grown too much – in part Cost of infection – It is now a growing threat to living standards even in rich economies, including the US.
Yet, in an election year around the world, politicians often ignore it problem, is unwilling to talk to voters about the tax hikes and spending cuts needed to address the debt deluge. In some cases, they make extravagant promises that, at the very least, will cause inflation to rise again and trigger a new financial crisis.
This month, the International Monetary Fund (IMF) reiterated its warning that “urgent responses” are needed to “chronic fiscal deficits” in the United States. Investors have long shared concerns about the long-term trajectory of US government finances.
“[Mas] Persistent deficits and mounting debt burden [agora] Make it a medium-term problem,” Roger Cullum, global head of interest rates at Vanguard, one of the world’s largest asset managers, told CNN.
Investors are worried as debt burdens pile up around the world. In France, political turmoil has heightened concerns about the country’s public debt, bond issuance or the returns investors are demanding.
The first phase of elections on July 1 suggested some The market’s worst fears may not materialize. But without fear of an imminent financial crisis, investors are demanding higher yields to buy the debt of many governments as the gap between spending and taxes widens.
Higher debt service costs mean less money is available for critical public services or to respond to crises such as financial collapses, epidemics or wars.
Since Treasury bond yields are used to price other debt such as mortgages, rising yields also translate into higher borrowing costs for households and businesses, which hurts economic growth.
As interest rates rise, private investment declines and governments have less borrowing capacity to respond to economic downturns.
To solve America’s debt problem, raising taxes or cutting benefits like Social Security and health insurance programs is necessary, says Karen Tynan, former chief economist at the U.S. Treasury and now a professor at the Harvard Kennedy School. “A lot [políticos] They are not ready to talk about the difficult choices they have to make. These are very serious decisions…and will have very serious consequences on people’s lives.”
Kenneth Rogoff, an economics professor at Harvard University, agrees that America and other countries will have to make painful adjustments.
Credit is “free anymore,” he tells CNN.
“In the 2010s, many academics, policymakers and central bankers came to the conclusion that interest rates would always be near zero, and began to think that debt was a free lunch,” he says.
“That’s always a mistake, because we can think of public debt as a flexible-rate mortgage, and if interest rates go up a lot, interest payments go up a lot. That’s what’s happening all over the world.”
‘The Conspiracy of Silence’
In the United States, the federal government will spend $892 billion (822 billion euros) on interest in the current fiscal year — more than is allocated to defense and Medicare, the health insurance program for the elderly. People with disabilities.
Next year, interest payments on the more than $30 billion national debt will exceed €921 billion, an amount equivalent to the size of the North American economy. Congressional Budget Office (GOC), Organization of Financial Control.
GOC predicted American debt It will reach 122% of GDP within 10 years from now. and in 2054, debt to reach 166% of GDP, economic growth slows down.
So how much debt is too much debt? Economists don’t think there is a “predetermined level at which bad things happen in markets,” but most of them believe that if debt reaches 150% or 180% of gross domestic product (GDP), this translates into “very severe spending.” For the economy and society in general”, says Tynan.
Although Growing alarm As for the federal government’s debt, neither Joe Biden nor Donald Trump, the leading candidates for the 2024 presidential election, have promised fiscal discipline before the November election.
when First Presidential Debate On television last week, televised by CNN, each candidate blamed the other America’s debt situation worsensEither through the tax cuts promised by Trump or the additional spending proposed by Biden.
British politicians have also buried their heads in the sand ahead of the July 4 general election. The Institute of Fiscal Studies (IEF), an influential think-tank, has condemned a “conspiracy of silence” between the country’s two main political parties on the dire state of public finances.
“Whoever takes office after the general election, if they are unlucky, [o novo governo] A difficult choice will soon be faced,” IEF director Paul Johnson said a week before the vote. “They either raise taxes more than they say in their statements, or implement some spending cuts, or borrow more and be content with increasing debt for a long time.”
Countries trying to solve debt problems face difficulties. In Germany, ongoing infighting over the debt ceiling has put the country’s tripartite coalition government under enormous pressure. A political crisis could come at the end of this month.
In Kenya, reactions to problem-solving efforts 80 billion dollars in debt of the country (73.75 billion euros) is even worse. The proposed tax increase sparked nationwide protests that left 39 people dead, leading Kenyan President William Ruto to announce he would not sign the bills.
A panicky bond market enters the scene
But the problem with delaying debt control efforts is that governments are vulnerable to more painful discipline from financial markets. A recent example of a major economy in this situation is the United Kingdom. Former Prime Minister Liz Truss instigated The pound collapses While trying to force through 2022 big tax cuts financed by debt increases.
And the threat hasn’t gone away. Take the case of France. The risk of a financial crisis became a serious concern practically overnight after President Emmanuel Macron called early elections in June following his defeat in the European elections.
Investors feared voters would elect a populist parliament committed to more spending and tax cuts, further exacerbating the country’s already high debt and budget deficit.
Although the worst-case scenario seems less likely now, it is uncertain what will happen now that the second round of elections did not deliver a victory for the far-right. French government bond yields hit an eight-month high on July 2.
The Harvard Kennedy School’s Tynan says financial markets could soon become jittery with “political dysfunction,” leading investors to doubt their willingness to honor government debt.
“We have a lack of imagination about the possibilities of things going wrong,” he says, “if the credit market goes wrong. [dos EUA]It’s not something that’s on our radar.”
“Hardcore explorer. Extreme communicator. Professional writer. General music practitioner. Prone to fits of apathy.”