Speaker McCarthy speaks about debt limit negotiations
The world economy has been put on red alert with a warning the huge £26trn debt drowning the US could have “enormous ramifications” for the rest of the globe.
US federal debt has exploded to an eye-watering figure for the first time in the country’s history, triggering fears the economy is about to plunge into recession and a government shutdown.
Over the last five years, the US has added a total of $11.5 trillion in debt, while the country is on course for $1trillion in annual interest expense. This follows the debt ceiling crisis that occurred in June.
The US economy is far and away the world’s largest economy, while the dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for international trade.
Treasury Secretary Janet Yellen has tried to calm fears around the economy but one expert has warned the US is in danger of defaulting on its debt in a move that would send shockwaves around the world.
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Andrew Sanders, Senior Lecturer in Politics and International Relations, De Montfort University, told Daily Express US: “The debt, as seen as a percentage of GDP, remains over 100 percent but it has dipped slightly since it was 134.8 percent back in 2020.
“Where to make spending cuts is a big problem as the largest chunk of federal debt, and the largest part of government spending is social security.
“Harder pushes to block the raising of the debt ceiling from within the House of Representatives might yet cause the US to default on its debt, which would have enormous, international, ramifications.”
The expert also warned the spiraling national debt is something Republican voters in particular are keeping a close eye on in the months leading up to the presidential election in 2024.
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That could prove to be a huge problem for Joe Biden, who is already trailing bitter rival Donald Trump in several polls as he battles for a second White House term.
Mr Sanders warned: “The federal debt is such a large figure that no ordinary US citizen can really comprehend that amount of money and on a day-to-day level it really doesn’t impact a lot of people in any way.
“It does, however, poll as something that people really care about – well over half of people in recent polls cite the importance of reducing the budget deficit as a key priority.
“It being a stronger issue among Republicans, both because Republican voters typically value conservative economic policies more highly and because the Republicans are framing this as an issue that is being caused by Biden.”
Earlier this month, Treasury Secretary Janet Yellen insisted she was comfortable with the nation’s fiscal course because interest costs remain manageable.
She said in an interview with CNBC: “The president has proposed a series of measures that would reduce our deficits over time while investing in the economy, and this is something we need to do going forward.”
But Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said in a statement on the same day: “As lawmakers drift from one short-term fiscal crisis to the next, our national debt just keeps piling up, trillion after trillion.
“After the debt ceiling showdown in June, we crossed the $32 trillion debt milestone. Now, as we stare down a potential government shutdown just three months later, we have raced past $33 trillion in red ink.”
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