An additional trillion dollars every 100 days...the insane growth of American debt

Biden (right) and Trump increased US debt (Associated Press)

Former President Donald Trump and current President Joe Biden caused the American deficit and debt to explode, and it seems that the presidential election campaign will not bring any improvement, according to the French newspaper Le Figaro in a report published by writer Florentin Collomb.

According to the report, American debt is growing at an insane rate of about an additional trillion dollars every 100 days, reaching $34.58 trillion, more than the gross domestic product of China, Japan, Germany, France, and the United Kingdom combined.

For the first time since World War II, American debt reached the threshold of 100% of GDP, compared to about 79% before the Corona crisis, and it is certain that this level remains relative compared to other countries. It is lower than France (111%), Italy (139%), and Japan (262%). But what is worrying is the rapid pace of this growth.

Budget generosity by the Trump and then Biden administrations accelerated this decline, and on the other hand, household aid packages during the Corona pandemic and then huge subsidies for industry and infrastructure from Democrats deepened the deficit.

Public spending reflects a policy of recovery in times of recession more than an economy witnessing sustainable growth, and according to Candream Academy economist Florence Pisani, “there was no need for this amount of financial support.”

According to a report published by the US Congressional Budget Office, an independent body charged with estimating the budget for Congress, the situation is not about to improve. After the federal public deficit reached 6.2% of GDP last year, it is expected to remain higher than 5% in the coming year. In the coming years, the debt will continue to increase.

According to long-term projections from the Congressional Budget Office, the ratio will rise to 110% of GDP in 2031, to 120% in 2036, and in 2054 to 166%.

The writer pointed out that this is considered a time bomb that raises increasing concern, and the chief economist at the International Monetary Fund, Pierre-Olivier Gurinchas, believes that the American debt last fall is “the most worrying” among all countries. As for Federal Reserve Chairman Jerome Powell, he said that if the level of debt does not constitute a problem in itself, then its path is the one that risks becoming “unsustainable.”

The US Capitol Building in Washington, DC, which houses the Senate and House of Representatives (Shutterstock)

On the verge of bankruptcy

A number of senior American businessmen have sounded the alarm in recent weeks, and Elon Musk, owner of Tesla and the social media network “X,” believes that “America will go bankrupt” if it does not reduce its spending.

On the other hand, JP Morgan President Jamie Dimon expects an imminent “rebellion” in bond markets. Last week, Larry Fink, head of the giant BlackRock Asset Management Company, revealed his feeling of “fear” of a “more urgent” situation. "Ever" could lead to a "period of austerity and stagnation" like the one Japan experienced at the end of the 1990s.

In March, Joe Biden presented a proposed 2025 budget worth $7.3 trillion, in which spending exceeded planned revenues by a quarter, further deepening the deficit.

The writer stated that the recurring crises over the imminent “shutdown” (closing the administration due to lack of funds) always end in reaching a political agreement in the end, and the new Speaker of the House of Representatives, Mike Johnson, believes that “the greatest threat to national security is the national debt.”

The writer added that the presidential election campaign does not encourage accuracy. However, in 2025, Joe Biden intends to increase taxes following the significant cuts adopted by his predecessor, especially imposed on income exceeding $400,000 annually.

In contrast, Donald Trump, if elected, promises to renew cuts that will add $5 trillion to the debt between 2026 and 2035, according to the Committee for a Responsible Federal Budget, and claims that he is able to finance the budget by doubling tariffs.

In light of this, Florence Pisani explains, “In the United States, there is not much room for maneuver on expenditures, but there are large margins on revenues. It would be very easy to increase taxes, but it takes political will,” adding, “Unfortunately, at the moment, "We are at a dead end."

Pentagon budget

The debt burden has increased significantly, as the US Treasury borrows at an interest rate of 4.2% over 10 years, which is among the highest rates in industrialized countries, and the interest cost on the debt, which will reach about one trillion dollars in 2026, is close to the cost of the Pentagon’s budget.

Along with the increasing burden on the budget, pessimists are concerned about the possibility of sanctions from bond markets, which would cause the cost of refinancing to rise to unsustainable levels.

This event can be compared to what former British Prime Minister Liz Truss experienced when she proposed unfunded tax cuts in October 2022.

The report states that Christophe Boucher, investment director at ABN Amro Bank for Investment Solutions, said: “We were warned of the American debt crisis 15 or 20 years ago.”

In 2011, Standard & Poor's downgraded the US rating from a triple A rating, and Fitch followed suit last summer.

The economist points out that "this did not change anything." In its latest report issued on March 27, Standard & Poor's also maintained its rating with a "stable" outlook, estimating that "government officials will continue to resolve short-term financial obligations in a timely manner, such as the debt ceiling."

As evidence of this calm, the US Treasury easily issued nearly $180 billion in new loans to the markets last week alone, which is roughly equivalent to what France issues in one year.

“The US benefits from the expensive privilege of printing reserve currency and international trade,” recalls Allianz Global Investors' Director of Bond Management, Frank Dexmeyer, and as such, they have access to an enormous savings pool.

Along with American private savers (retirement funds, etc.), who own half of the national debt, and the federal government and the Federal Reserve, which own a quarter of the debt, foreign investors - the Japanese in the lead - are rushing into buying Treasuries, despite dramatic warnings. To worry about US debt, the demand for buying it does not appear to be weakening any time soon.

Source: Le Figaro