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The US economy’s weakness lies in rising debt levels and government spending, with a significant portion of GDP growth coming from bloated government spending financed by more debt and inventory revaluation. The increase in GDP between Q3 2022 and Q3 2023 was $414.3 billion, while public debt increased by $1.3 trillion ($32.3 to $33.6 trillion).
The US is currently in the worst year of growth, excluding public debt accumulation since the thirties, and this trend is continuing into the first quarter of the new fiscal year. The Treasury Department’s statement indicates that the US’s total budget deficit for 2024 has surpassed $380 billion, putting the country on track for an annual deficit of over $2 trillion by the end of the fiscal year, making 2024’s deficit the third-largest ever, after 2020 and 2021.
The American debt train is not slowing down, with the total federal debt expected to reach $34 trillion by the end of this month. This represents a significant increase since 2020, with the US adding over $7 trillion to its debt. The total revenue for the 2023 fiscal year was $4.4 trillion, and the total debt in FY 2023 topped 38 percent of all federal receipts. From the early 2000s to 2022, real interest rates were essentially zero, allowing the federal government to borrow money at rock-bottom rates.
In 2022, interest paid on new federal debt increased significantly, with the total annual interest paid on the debt doubling from 2019 to 2024. The yield on 10-year Treasurys also surged, nearly reaching five percent in October 2023.The true cost of the rising national debt has amplified, with interest paid on the debt increasing by 75 percent since 2019.
The increase in spending has outpaced all other major categories except income security, which has seen a 40% increase in Social Security and 30% increase in Medicare. If the current trend in interest and debt continues, Congress will have to make unpopular spending decisions.The federal budget is increasingly dominated by interest payments, with debt service requirements consuming more of it than military and Medicare spending, necessitating budget cuts for other areas.
The central bank is printing dollars to pay debts while avoiding fiscal austerity to avoid disaster. As interest payments are fleeing wage earners, it may make more political sense to repudiate the debt. The government has no moral obligation to pay its debts, as interest payments are paid by tax dollars and are a forced wealth transfer from taxpayers to bond holders.
If the US defaults, bond holders risk losing their investments, while taxpayers are an involuntary party to the agreement. The moral thing to do is to free taxpayers from the obligation, as they are an involuntary party to the agreement.
