News Observation | Difficulty in Eliminating the "Tumor" of the US Debt Crisis | Rating Lowering the Alarm Bell | US | Crisis
On August 1st local time, international rating agency Fitch Ratings downgraded the default rating of long-term foreign currency issuers in the United States from AAA to AA+, marking the second credit rating downgrade in US history.
Market observers believe that Fitch's downgrade of the US credit rating indicates that the US debt growth is unsustainable, and its government governance and financial management capabilities are questioned. At the same time, the persistent high debt may crowd out public investment and inhibit economic development.
At present, the US public debt has exceeded 32.6 trillion US dollars, equivalent to nearly 100000 US dollars of debt per American, and the US debt scale exceeded 32 trillion US dollars nine years earlier than the prediction before the COVID-19 epidemic.
Fitch's long-term forecast shows that the proportion of US government debt to GDP will further increase, reaching 118.4% by 2025, far higher than the pre pandemic level of around 100%, which will exacerbate the vulnerability of the US fiscal situation to future economic shocks.
Market observers say that a rating downgrade is an alarm that the United States needs to restore fiscal order to normal.
According to data from the US Treasury Department, the US government's fiscal deficit for the first nine months of this fiscal year, from October 2022 to June 2023, was approximately $1.4 trillion, nearly three times that of the same period last year.
Experts say that high budget deficits have not raised the alarm of most economists in the past, as they believe that low interest rates will persist in the long term. However, since entering the current rate hike cycle in March 2022, the Federal Reserve has raised interest rates 11 times, with a cumulative increase of 525 basis points. Due to the high level of US public debt, rate hikes will have a "substantial impact" on US public finances.
The Congressional Budget Office predicts that federal government interest expenses will reach $663 billion in 2023, further soaring to $1.4 trillion in 2033, and a total net interest of $10.6 trillion over the next 10 years. From 2007 to 2020, interest expenses remained around 1.5% of the US gross domestic product, and by 2029, this proportion will reach 3.2%.
In the long run, the increase in interest costs is a major challenge, as the constantly increasing interest costs and debt burden may squeeze out public investment that could have been used to drive future economic growth, thereby suppressing economic development.
