U.S. Government Debt Reaches $1 Trillion: Could a Debt Crisis be Looming?
• The US Federal Reserve is removing liquidity from the financial system to fight inflation.
• Analysts predict that the Fed will have no choice but to cut or risk a catastrophic debt crisis.
• Interest payments on current US government expenditure is hurtling towards $1 trillion per year.
The US Federal Reserve has been steadily removing liquidity from the financial system to combat inflation, a process known as quantitative tightening (QT). This has been a reversal of the money printing measures implemented during the COVID-19 pandemic. Analysis of US macroeconomic data has led some market commentators to believe that the Fed will soon have no choice but to halt the process altogether in order to avoid a „catastrophic debt crisis“.
Sven Henrich, the founder of NorthmanTrader, summarized his findings in a chart showing interest payments on current US government expenditure. These payments have been steadily increasing since March 2020 and now total a staggering $1 trillion a year, 42% higher than the pre-pandemic levels. This is compounded by the US government debt being over $31 trillion, a number that has been increasing due to the money printing measures.
The impact of this debt can be seen when comparing interest payments to US tax revenue. Wall Street Silver highlighted this comparison on Twitter, demonstrating the scale of the problem. Although the US is not yet in a debt crisis, these figures demonstrate the vulnerability of the US economy.
Government debt is not confined to the US, with many other countries having similar levels of debt. For example, the UK government debt stands at over £2 trillion, despite the economy being relatively small. Other countries such as Japan, Italy and Greece have similarly high levels of debt.
The potential debt crisis is being taken seriously by some analysts, who have been warning of the risks of quantitative tightening for months. They are now predicting that the only option for the US Federal Reserve is to halt the process or risk a „catastrophic debt crisis“. This would have a severe impact on the US economy, with a possible recession or even a depression.
Although the US is not in a debt crisis yet, these figures demonstrate the vulnerabilities of the US economy. The implications of the US government debt and quantitative tightening have far-reaching consequences, and the future of the US economy is uncertain.