Concerns about the state of the U.S. economy have intensified after data showed that the national debt has surpassed 40 trillion dollars, causing alarm even within the country.
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When Trump began his first presidential term in 2016, the U.S. debt was slightly less than 20 trillion dollars. According to the BBC, over the past decade this amount has doubled.
Eric Swanson, an economics professor at the University of California and a former senior economist at the Federal Reserve, emphasizes that the main difference compared to ten years ago is related to interest rates.
“What is very different now, compared to a decade ago, is the level of interest rates,” Swanson says.
He adds that long-term interest rates in the U.S. are among the highest in recent decades. Part of this increase is linked to fears of inflation, while the rest stems from concerns about the extreme level of borrowing by the U.S. government.
Investors in the bond market are demanding higher returns, worried about the size of U.S. debt. Simultaneously, technology companies, which are borrowing colossal amounts to finance investments in artificial intelligence, are competing with the government for investor capital.
Forecasts show that U.S. debt could reach around 64 trillion dollars by 2036. However, economists assess that the situation has not yet entered a critical phase.
The U.S.’s status as the world’s largest economy and the dollar’s role as a global reserve currency give the country “much more room for fiscal error” compared to other nations. According to experts, “we are reaching a point where the yellow light is flashing, but it’s not yet a red light.”
The U.S. national debt accounts for about 126% of the size of the economy. However, this percentage remains lower than in other G7 countries, including Japan and Italy.
