The ballooning U.S. national debt has raised concerns among experts, with JPMorgan likening the situation to a ‘boiling frog’ scenario that could lead to an unmanageable financial crisis. The national debt has reached an all-time high of $34 trillion, fueled by the government’s record borrowing.
A ‘boiling frog’ situation occurs when individuals neglect to address a developing issue, allowing it to escalate gradually until it becomes critical. In this case, the growing debt issue is being exacerbated by the government’s continuous borrowing, which could result in a financial crisis if not addressed.
According to the Congressional Budget Office, by the early 2030s, the U.S.’s mandatory spending and net interest payments on the debt could surpass the government’s total revenue. The problem lies in the starting point, as every round of fiscal stimulus brings the U.S. closer to debt unsustainability, warns Michael Cembalest, a strategist at JPMorgan.
While JPMorgan had previously projected a ‘boiling frog’ recession for 2023 and 2024, Cembalest believes that the risks of a recession are still present, although any downturn expected in the near future is likely to be mild.
The Treasury’s debt tracker reveals that the national debt crossed the $34 trillion mark for the first time ever last week. The debt level has been steadily rising since 1982 when it surpassed $1 trillion. It reached $10 trillion in 2008 and $20 trillion in 2017, continuing its upward spiral. The growing U.S. debt poses risks for both the economy and markets.
According to a report by the Council on Foreign Relations, the U.S. federal government debt is now at its highest percentage of GDP since World War II. This indicates the severity of the debt issue and the potential consequences it could have on the economy.
It is crucial for the government to address the growing national debt and implement measures to reduce it. Failure to do so could result in a financial crisis that would have far-reaching implications for the country and its citizens. The issue of debt sustainability needs to be tackled head-on to ensure the stability and prosperity of the U.S. economy in the long run.
It is important for policymakers to find a balance between stimulating economic growth and managing debt. This requires careful planning and decision-making to ensure that the national debt remains at a manageable level. By taking proactive steps to address the debt issue, the U.S. can avoid the potential consequences of a ‘boiling frog’ scenario and maintain a stable financial environment.
