The United States, a country of freedom and once the cradle of real capitalism. After the Second World War, the undisputed world hegemon, dominating economically and technologically. The architect of the global economic system, currently the largest economy in the world in terms of nominal GDP. The cultural and moral patterns of the United States have an impact on the societies of all countries in the world. Who have not ever watched the movie production of Hollywood, listened to American pop music, eaten McDonald’s burger or drunk Starbucks coffee. The United States is a military power that dominates the seas and oceans, its naval fleet flows the whole globe, and the troops station in bases deployed on every continent, including Japan, Germany, Turkey, Brazil, Australia and Djibouti in Africa. Despite their successes in the international arena, the United States has a big problem that is not publicly spoken out loud.
Among the economically developed countries, the United States is ranked first on the podium in terms of debt. It should be noted that the public debt of the United States is the highest debt in the history of the world. The national debt due to negotiable and inalienable government bonds currently exceeds US $ 21,000,000,000. However, if we take into account the total debt of households, US companies, local and state authorities, financial institutions and federal authorities, the amount will grow to US $ 70,000,000,000. This is a huge sum considering the fact, that the nominal GDP of the United States amounts to almost US $ 19,585,000,000,000, the public debt is larger than the size of the entire American economy, and more importantly the debt does not slow down at all, but accelerates.
Since Donald Trump took office as president, the public debt from US $ 19,800 billion has risen to over US $ 21,000 billion. This is an increase of more than 6% per annum. To further reflect the growing problem, I will present a few comparisons.
In a single day, from last Thursday to last Friday, the national debt increased by US $ 73 billion dollars. IN ONE DAY. US $ 73 billion is greater than the capitalization of major companies such as General Motors, Ford and Southwest Airlines. In February alone, the national debt grew by an amazing US $ 215 billion, which is higher than the GDP of New Zealand or Greece. In addition, it is twice as much as Mexico’s GDP.
Long-term budget forecasts, carried out by Congressional Budget Office, also do not fill us with optimism, it’s quite the opposite. They encourage deep reflection on the future of the US economy. Below I present a forecast reaching the year of 2050, regarding public debt.
According to long-term estimates, by 2045-2050, US public debt is expected to reach 150% of GDP. The key issue is that, the increase in debt is higher than GDP growth. It is extremely important to understand the seriousness of the situation. For example, last year the US economy grew by 2.5% in real terms, i.e. by diminishing inflation. Even if we include inflation in the calculations, the size of the American economy increased by 4.4%. However, the national debt has increased by 6%. The difference may seem small, however, it is not. Proportionally public debt has increased by 36% faster than the US economy. It is estimated that by 2035, public debt in relation to GDP will exceed the historical maximum from World War II.
The chart below is showing the budget deficit for the next years. This is another confirmation that it will not be possible without taking subsequent tranches of the loan to cover expenses for the next decades. In the period from 1967 to 2017, the budget surplus was recorded only in five years. The average budget deficit over these years amounts to 2.8% in relation to GDP. Projections for the coming years anticipate the deepening of the budget deficit.
To finance what areas the United States needs such money? Below is a graph showing the state’s expenditure over the previous years and estimates for the next decades.
On the basis of the chart, we can see that by 2050, spending on healthcare will increase astronomically, from around 5.5% in relation to GDP to 9.5%. Social insurance spending is also expected to increase, from the current 5% in relation to GDP to 6.5%. It is clear that the reform of health care and the social security system is extremely important for the United States. It may prove further financial condition of the country, because it will be necessary to finance with the help of debt to cover these expenses.
As long as the United States is able to handle interest paid on its debts, there is no problem. Creditors will continue to provide funding for budget spending. The graphics shown below can be treated as an alarm. Red alert.
COSTS OF INTEREST PAID FROM PUBLIC DEBT WILL GROW TO 6.2% TO THE GDP OF THE UNITED STATES.
The estimated costs of servicing US public debt will be twice as high as the expenses ever incurred for the development of research, infrastructure and education combine. So the situation seems really serious. In such conditions, due to a bubble on the government bond market, the United States can now borrow money virtually for free. Interest on US 10-year treasury bonds is now at 2.8%, and just six months ago the interest rate was 2%. Finally, from the end of 2015, the interest rate on 10-year bonds increased from 1.2% to the current 2.8%. If the trend continues until we can expect a higher interest rate on the bonds.
The question is, how long will the creditors of the United States continue to provide loans for such a low percentage, in view of the constantly growing public debt, which exceeds the real growth of the US economy. And further borrowing will lead to higher interest payments. The largest holder of US bonds is … China. In the current situation, the administration of Donald Trump threatens to impose tariffs on Chinese high-tech products, arguing this move protects US intellectual property and excessive trade deficit with the Middle Kingdom. It can have negative effects on the bond market. Tnformation comes out that China will reduce the ownership of US bonds. If China sold bond sales, it could lead to a drastic increase in interest rates on US bonds.
In a situation of rapidly growing US debt, an increase in short-term interest rates, a speculative bubble in the stock markets, a bubble in real estate market and prospects of a trade war in Donald Trump’s administration, the future of the United States does not look interesting. In the near future we can expect further tensions in the international arena, which may turn into a real trade war between the two largest economies in the world, namely the US and China. The situation can easily get out of control and a major armed conflict there is a short way to go. By the way, writing, during the war you do not have to pay your financial obligations. Perhaps we are witnessing the early collapse of the great state, the first world hegemon. The economic and military strength of the United States is weakening. The pretender to take the position of the United States is CHINA and it is the new world order that is being played. The 19th century belonged to Great Britain, the 20th century belonged to the USA, while the 21st century may belong to China.