Introduction

The explosive growth of U.S. national debt is staggering, with an increase of nearly $15 trillion per year since 2017. What exactly does this mean? As the leader of the global economy, the United States seems to navigate the debt issue with ease, but can this prosperity really last? We will delve into the hidden crisis behind this seemingly prosperous facade.

Explosive Growth of U.S. Debt

The pace of U.S. national debt growth is remarkable. Since 2017, U.S. national debt has been increasing at a rate close to $15 trillion per year. At this rate, without any other intervention, the U.S. national debt is expected to surpass the $50 trillion mark within the next five years. This is truly an unimaginable figure.

As the world's economic powerhouse, the United States, with the U.S. dollar's status as the world's currency, often gives other countries a feeling of being "mowed down like leeks" when they make economic adjustments. This is because the United States can simply transfer its debt to other countries by vigorously operating the printing press, while the latter must repay the losses incurred from purchasing U.S. debt through arduous efforts.

In contrast, the United States seems to have no need to worry about its debt issues at all. As long as the U.S. dollar remains the world's currency, the United States can continue to navigate the debt landscape indefinitely, unlike some small countries that, once heavily indebted, have no choice but to seek help from the International Monetary Fund.

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Fiscal Revenue and Expenditure

According to data released by the U.S. Department of the Treasury, the United States' annual fiscal revenue is approximately around $4.4 trillion, while expenditures are mainly concentrated in four areas: social security, national debt interest, healthcare, and military spending. Among these, social security spending is the largest, followed by national debt interest, healthcare, and military spending, which has dropped to the fourth position.

On the surface, it seems that revenue and expenditure are roughly equal, but in reality, there are significant issues. Most of the United States' fiscal revenue comes from taxes, and if the economy declines, tax revenue will naturally decrease. However, expenditures are difficult to reduce quickly due to reduced income, especially rigid expenditures like social security, which are almost impossible to adjust based on fiscal conditions.

Moreover, national debt interest must be paid annually and cannot be withheld due to a sluggish U.S. economy, as this would severely affect investors' confidence in U.S. debt. It is evident that while the United States appears to have a relatively balanced fiscal revenue and expenditure on the surface, there are actually significant hidden dangers.The Federal Reserve's Interest Rate Hikes and Cuts

The Consumer Price Index (CPI) data for the United States has been released, showing that the CPI for September was 2.4%. While this may not seem particularly high, it is higher than the market's expectation of 2.3%, indicating that inflation in the United States is still higher than the Federal Reserve's expectations. Additionally, the retail data is impressive; the retail sales for September increased by 0.4% month-on-month, which is quite remarkable against the backdrop of the Federal Reserve's interest rate hikes.

Based on past experience, when economic data performs this well, the Federal Reserve should be eager to raise interest rates to prevent the economy from overheating. However, we are witnessing what appears to be a management of expectations for a potential rate cut.

Faced with higher-than-expected inflation and retail data, the Federal Reserve has not taken measures to raise interest rates but has instead hinted at the possibility of future rate cuts. This has caused a significant market reaction because rate cuts imply a looser monetary policy, which in turn stimulates investors to enter the market, thereby driving up the prices of stocks and other risky assets. However, such actions are not friendly to other countries.

Although the Federal Reserve's rate cuts seem to be beneficial to the global market, they are essentially masking the structural issues of their own economy through the devaluation of the US dollar. As a result, the dollar assets held by other countries depreciate, and to prevent their own currencies from appreciating excessively, other countries often have no choice but to intervene in the foreign exchange market, selling their own currencies in exchange for more dollars.

Is an Economic Crisis Looming for the United States?

For other countries, the best course of action is to maintain their own economic defenses and not be lured by the Federal Reserve's rate cuts. It is important to remember that the Federal Reserve has used this method to stimulate the market on multiple occasions, but what has been the outcome? Each time, it has triggered a new crisis. The United States can withstand such shocks relatively well, given the massive presence of the US dollar, but other countries are not as resilient to these impacts.

We have observed that some emerging market countries have already begun to experience capital outflows and currency devaluation, and the reason behind this is the expectation of rate cuts by the Federal Reserve. Although the US economy appears to be thriving at present, a closer analysis reveals that this prosperity is built on a mountain of debt.

US Treasury bonds have become the biggest black hole in the country's economy. According to statistics, the budget deficit for the fiscal year 2024 will reach $1.833 trillion, which is the third-largest deficit in history, only behind the COVID-19 pandemic years of 2020 and 2021. Moreover, this deficit is increasing year by year; three years ago, it was $500 billion, and now it has nearly quadrupled. If effective measures are not taken, the situation will only become more severe in the future.The yield on the 10-year U.S. Treasury bonds has recently risen from 3.65% to 4.1%. What does this change indicate? It suggests that the market's confidence in U.S. debt has begun to waver, with a significant amount of U.S. debt being sold off. If the United States does not take measures to stabilize the market, this yield will only continue to rise, and at that point, the U.S. will truly have to pay the price for its national debt.

Conclusion

On the surface, the U.S. economy appears to be thriving, but the underlying debt crisis is a cause for concern. The continuous expansion of national debt and the Federal Reserve's interest rate reduction strategy could trigger greater global economic turmoil. What are everyone's thoughts? Do you believe the U.S. economy can continue to grow at this pace, or is a crisis imminent?