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The Bond Market Meltdown Is Being Fueled By The US’s Enormous Debt Load

Investors are already becoming concerned about the country’s accelerated debt growth in 2023. In June, lawmakers came dangerously close to a catastrophic default due to an 11th-hour agreement mediated by President Joe Biden and former House Speaker Kevin McCarthy to raise the federal borrowing limit.

Some of the most well-known figures on Wall Street are now hinting that the disaster in Treasurys that has caused benchmark rates to reach 16-year highs may have been aided by “bond vigilantes,” who sell off fixed-income assets in an effort to thwart what they perceive to be reckless policymaking.

These four graphs demonstrate the reasons the US’s enormous debt load is concerning and the ways in which it is already affecting markets.

The US National Debt Continues To Rise

The government has been borrowing more and more money to finance its spending plans ever since the Second World War ended.

Economists believe that the significant surge in debt is a result of a number of factors, including tax cuts during the Reagan-Bush administration, the enormous expansion of the Treasury-bond market, and flashpoints like the financial crisis and the war of Iraq.

A rift has also emerged in Washington due to the government’s ever-increasing repayment commitments; prominent hard-right Republicans such as Florida Governor Ron DeSantis and Representative Matt Gaetz have voiced their opposition to the Biden administration and May’s debt ceiling settlement.

Fall In US Economy

The US debt-to-GDP ratio, which gauges the deficit level in relation to the size of the US economy overall, has likewise been gradually increasing since 2000 and crossed 100% for the first time in 2019, according to data from the International Monetary Fund.

Debt


Photo From: The New York Times

“When total debt exceeds GDP by 100%, will issues arise immediately? Most likely not In a research note published last week, he cautioned that taking on additional debt might compel the government to raise taxes, encourage more bond sell-offs, and result in higher interest rates. “That said, US debt dynamics are evolving in a way that requires attention,” he said.

According to IMF data, the US is one of just 21 nations in the world where the magnitude of the deficit surpasses total GDP; other economies on this list include war-torn Sudan, Greece, and Sri Lanka.

Over the previous 20 years, the US’s debt-to-GDP ratio has increased more quickly than that of the majority of the G7 countries. The only two countries in the group with governments that have greater debt to GDP totals are Italy and Japan.

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