Jakarta, CNBC Indonesia - The United States\u2019 national debt has now\nsurpassed 100% of gross domestic product (GDP), breaching a threshold\npreviously considered unlikely. This condition places the debt-to-GDP\nratio on track to exceed the record set after the Second World War.<\/p>\n
Based on data as of 31 March, US public debt reached US$31.265\ntrillion, while the previous year\u2019s GDP stood at US$31.216 trillion.\nThus, the debt-to-GDP ratio stands at 100.2%, up from 99.5% at the end\nof the previous fiscal year on 30 September.<\/p>\n
According to The Wall Street Journal, this increase is expected to\ncontinue due to the federal government recording large annual deficits,\napproaching 6% of GDP. These deficits continue to add to the debt burden\namid government spending of US$1.33 for every US$1 in revenue.<\/p>\n
This year\u2019s budget deficit is projected to reach US$1.9 trillion,\nrelatively unchanged from 2025. The final figure still depends on\nseveral factors, such as spending on the Iran war, tariff refunds, and\noverall economic strength.<\/p>\n
Nevertheless, the 100% level does not immediately represent a\ncritical boundary between safe conditions and crisis. The ratio may\nfluctuate in the coming quarters in line with changes in tax receipts,\nexpenditures, and GDP dynamics.<\/p>\n
However, this three-digit figure symbolises the fiscal pressures that\nhave accumulated over decades. Policymakers from both political parties\nhave voiced concerns, though they continue to prioritise short-term\npolitically beneficial policies such as tax cuts and increased\nspending.<\/p>\n
Economists view the debt-to-GDP ratio as a primary indicator for\nmeasuring the borrowing burden on the economy. The higher the ratio, the\ngreater the resources absorbed in debt repayment rather than productive\nactivities.<\/p>\n
The government also becomes more sensitive to interest rate changes\nas debt rises. Currently, about one in seven dollars of federal spending\nis used to pay interest on the debt.<\/p>\n
A 0.1 percentage point increase in interest rates is estimated to add\nup to US$379 billion in costs over 10 years. This highlights the high\nfiscal risk faced if borrowing costs rise.<\/p>\n
In the long term, economists warn that high debt could drive up\ninterest rates, including for mortgages, car loans, and credit cards.\nAdditionally, debt could hinder private investment by absorbing\navailable capital in the market.<\/p>\n
Some economists also assess that high debt could trigger inflation if\nthe central bank is pressured to keep interest rates low or print money.\nThis situation occurred during the 2020 pandemic when the debt ratio\ntemporarily exceeded 100% due to a surge in borrowing and a decline in\nGDP.<\/p>\n
However, after the pandemic, the ratio temporarily fell with economic\nrecovery and inflation driving nominal GDP growth. Nevertheless, for the\nfirst time since 1946, the US is expected to close the fiscal year with\na debt ratio above 100%.<\/p>\n
The Congressional Budget Office (CBO) estimates the ratio will reach\n100.6% by the end of the fiscal year on 30 September and surpass the\nrecord by 2030. Indeed, the debt ratio is projected to rise to 120% in\n2036 and 175% in 2056.<\/p>\n
By comparison, the US debt-to-GDP ratio peaked at 106.1% in 1946\nbefore dropping sharply due to post-war economic growth. The ratio even\nfell below 40% in 2008 before surging again due to the global financial\ncrisis and the pandemic.<\/p>\n
The US government has also continued to add debt through various\npolicies such as tax cuts and increased social spending. Meanwhile,\ndemographic factors like an ageing population further increase the\nburden of programmes such as social security and healthcare.<\/p>\n
Although the US has the advantage of issuing the world\u2019s reserve\ncurrency and its bonds are considered safe assets, the room to continue\nadding debt remains limited. Without significant economic growth,\nmaintaining the debt ratio around 100% would require unpopular policies\nsuch as spending cuts and tax increases.<\/p>\n
Over the next decade, the cumulative deficit is projected to reach\nUS$24 trillion. To stabilise the debt ratio at 100%, fiscal adjustments\nworth about US$10 trillion would be needed through a combination of\npolicies.<\/p>\n
Although the debt issue was a major concern in the 1980s to 1990s\nera, the current policy response is still deemed minimal. Economists\nassess that the biggest challenge is not only the economic conditions\nbut also the political dynamics that hinder long-term solutions.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/debt-to-gdp-ratio-surpasses-100-is-the-us-on-the-brink-of-bankruptcy-1777636397", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }