The U.S. debt problem is piling up

<p>JPMorgan has warned that the growing US public debt, which
shows no signs of slowing, could pose a real problem for the US economy.</p><p>Every year, the <a href="https://ceo.ca/@TradingView/we-got-a-deal-gold-price-prospects" target="_blank" rel="follow">US government increases its indebtedness</a>, and
analysts are quick to point out that the bill will eventually come due. How
different is it this time?</p><p>It is not just that bonds have surpassed a record $34
trillion, but also high-interest rates, which are driving up debt servicing
costs.</p><p>According to a recent study, annualized gross interest
payments on US debt reached $1 trillion at the end of October, doubling from 19
months earlier.</p><p>But worse, if no action is taken, net interest costs could
rise from 2.4% of GDP in 2023 to 3.7% and 6.7% in 2033 and 2053, respectively.</p><p>It should also be noted that increased debt issuance by the
US Treasury to meet rising deficits threatens to crowd out private investment.</p><p>To be more precise, with the same trajectory of private
sector money flowing into US Treasuries, the country could lose new private
sector initiatives. At the very least, the situation does not look very
sustainable in the long run.</p><p>In particular, investors became wary that the US might fail
to address its fiscal imbalance and debt burden meaningfully, increasing the
risk of a self-inflicted default.</p><p>In this context, it is unsurprising that foreign holdings
of US debt have fallen from their 2009 peak of 50% in early 2023 to 27%, the
lowest level since 2002.</p><p>It is also true that geopolitics does not exactly increase
the attractiveness of US government debt for countries such as China, whose
Treasury holdings <a href="https://www.reuters.com/article/us-usa-treasury-securities/china-treasury-holdings-in-august-fall-to-lowest-since-june-2017-treasury-data-idUSKCN1MQ2YY/" target="_blank" rel="follow">fell in August to their lowest level</a> in 14
years.</p><p>What could be the solution?</p><p>The obvious one is to reduce indebtedness or the budget
deficit. The problem is that this is easier said than done, especially at
voting time when parties are trying to win voters.</p><p>If the ruling party decides to cut back on some of its
programs, it could provoke social unrest, something the current leadership
cannot afford. Thus, the only option is to raise revenues.</p><p>But again, this is a challenging task, especially with
presidential elections approaching. As raising taxes is not an option, the only
hope is growth in export revenues.</p><p>The question is how to achieve this when the global economy
is not in the best shape while US citizens continue to spend like there is no
tomorrow.</p><p>What is the conclusion?</p><p>The higher the US public debt, the closer we are to a
catastrophe. Given the current figures, it is not whether it will happen but
when the <a href="https://www.investopedia.com/updates/usa-national-debt/#toc-consequences-of-national-debt" target="_blank" rel="follow">consequences</a> will come.</p><p>Lining one's pockets with long-term treasury bonds, in this
sense, could be a risky business. Still, the yield is expected to fall, and
prices increase in the short term as monetary policy changes.</p><p>As for potential signs that could indicate a shift in
market sentiment, <a href="https://www.tradingview.com/scripts/volume/" target="_blank" rel="follow">the volume indicator stands out</a>, it is also
advisable to keep an eye on data updates as they dictate the Fed's path.</p>

This article was written by FL Contributors at www.forexlive.com.