The Wall Street Journal is reporting some of the biggest names in finance are sounding the klaxon horn on decades of U.S. off-the-hinges borrowing.
“Ray Dalio, founder of the hedge fund Bridgewater Associates, has warned of a debt crisis akin to an ‘economic heart attack.’ Jamie Dimon, chief executive of JPMorgan Chase, is predicting a breakdown in financial markets,” the Wall Street Journal reports.
This has everything to do with federal lawmakers’ broken reliance on debt over revenue.
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“The government has to borrow money for a simple reason: It spends more money than it collects in revenue. Borrowing fills that gap, ensuring that the government can make the payments required by current law,” reports analysts Sam Goldfarb and Danny Dougherty.
The bulk of the government’s borrowing is by issuing securities known as Treasurys, but outstanding Treasurys totaled nearly $29 trillion at the end of May—equivalent to around 95 percent of annual U.S. economic output and roughly double the amount from eight years ago.
Investors, they say, are accustomed to surging deficits during wars and recessions, and neither of these qualify as modern problems.
“Right now, the government is borrowing as if it were in a crisis—even though it isn’t,” they say, and this points to a structural fiscal imbalance” that could set the government up to bury itself by issuing “larger and larger amounts of notes and bonds.”
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Investors are also concerned President Donald Trump’s tariffs are exacerbating the debt problem by reducing “foreign appetite for (U.S.) Treasurys”. The share of Treasurys held by foreign investors has already been declining for years, they warn.
Critics blame the nation’s unsustainable reliance on debt more directly to the Republican Party’s decades-long crusade for tax cuts. Former World Bank leader Robert P. Beschel says the U.S. now collects significantly less money as a share of GDP than comparable countries and less than it has taken in historically.” We rank 32nd out of 38 nations for the revenue we collects as a share of GDP.
And on top of all this, analysts consider Trump’s budget proposal lumbering through the Senate this week a debt bomb capable of blasting U.S. debt up between $52 and $56 trillion.
Read the full WSJ report at this link.