The US grapples with mounting debt and political tensions, signaling potential market turmoil ahead.

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Hold onto your hats, folks, because the fiscal storm clouds are gathering, and they’re painting a picture of unprecedented turmoil on the horizon. In a recent warning, the head of Congress’s independent fiscal watchdog has sounded the alarm bells, signaling that the US is hurtling toward a market shock of seismic proportions.

According to the Congressional Budget Office, America’s fiscal burden is on an “unprecedented” trajectory, with the potential to trigger a crisis akin to the market mayhem witnessed during Liz Truss’s tumultuous reign in the UK back in 2022. But before we delve into the nitty-gritty, let’s unpack the numbers.

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US national debt currently stands at a staggering $34.6 trillion, with an annual budget deficit soaring to approximately $3 trillion. And if that’s not enough to make you break out in a cold sweat, Congress recently greenlit an additional $1.2 trillion in spending, laden with pork and earmarks.

But here’s the kicker: the interest on this colossal debt pile alone exceeds a mind-boggling $1 trillion per year, constituting roughly 20% of the government’s annual revenue. And while some argue that we’re not quite there yet, projecting a future where higher interest rates could see debt costs skyrocket to $1 trillion by 2026.

Now, here’s where things get dicey. The discrepancy between the CBO’s debt assessment and other estimates lies in the exclusion of holdings by the US Federal Reserve. This means that the true magnitude of America’s debt mountain may be even more staggering than official figures suggest.

Meanwhile, fears abound as global debt levels race toward a jaw-dropping $100 trillion, with the Fed mulling over rate cuts in an election year. Could political pressure be influencing monetary policy decisions? Some speculate that recent dovish pivots by the Fed may have less to do with economic indicators and more with political maneuvering behind closed doors.

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As we brace for what lies ahead, one thing is abundantly clear: the financial landscape is fraught with uncertainty, and the stakes couldn’t be higher.

Sources:

notayesmanseconomics.wordpress.com/2024/03/26/there-are-warning-signs-about-the-us-fiscal-position-and-the-national-debt/

confoundedinterest.net/2024/03/25/fear-the-talking-fed-global-debt-fast-approaching-100-trillion-as-fed-talks-rate-cuts-in-election-year/

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