US economy hits new record low; debt crosses $33tn for first time
4 Min Read
Financial experts express their concern that the economic situation in the United States would scar American citizens for generations to come.
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The US Capitol in Washington surrounded by clouds on a winter day, in February 2023 (AFP)
The United States witnessed on Monday its gross national debt surpassing the milestone of $33 trillion for the first time in the country's history, serving as a clear indicator of the nation's shaky financial situation.
Just three months ago, the United States reached its previous record-high debt level of $32 trillion. This occurred shortly after President Joe Biden signed legislation to uncap Washington's debt ceiling previously set at $31.4 trillion, thereby preventing a potentially catastrophic American debt default.
Washington is currently facing a similar financial standoff as the government expenditure budget is set to expire by the end of September amid yet another bipartisan clash over federal spending.
Commenting on the event, US Treasury Secretary Janet Yellen said President Joe Biden is attending to the issue through a series of proposed measures aiming to balance spending and increase cash flow into the economy.
Read more: Market investors betting on US economic crash later in 2023
“Certainly greater deficit reduction is possible,” Yellen told American media outlets. “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.”
“We have to make sure that we do keep deficits under control going out,” she added. “The statistic or metric that I look at most often to judge the fiscal, our fiscal course is net interest as a share of GDP [gross domestic product]. And even with the rise we’ve seen in interest rates, that remains at a very reasonable level of around 1%, but we’d need to be careful about what we do going forward in order to make sure we stay on this sustainable course.”
However, her reassurances found little agreement among experts who argue that the economic conditions are poised to have a lasting generational adverse effect, with no signs of abating as both inflation and Federal Reserve rates continue their upward trajectory.
On Sunday evening, House Republicans introduced a short-term plan designed to provide temporary government funding until October 31. This interim measure, known as a continuing resolution, includes an 8 percent reduction in spending for most federal agencies while making exceptions for funding related to defense, veterans affairs, and disaster relief.
Nevertheless, the proposal faced opposition from Republican members, intensifying the likelihood of yet another last-minute showdown on Capitol Hill.
"As lawmakers drift from one short-term fiscal crisis to the next, our national debt just keeps piling up, trillion after trillion," said Michael Peterson, CEO of the Peter G. Peterson Foundation. "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."
"As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly," Peterson said. "With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids."
American economy catching heat
Last month, just days after Fitch downgraded the US credit rating, Bank of America said in a memo to clients that the United States' debt will grow by a whopping $5.2 billion daily for the next ten years.
The conclusions were based on data issued by the Congressional Budget Office (CBO), a nonpartisan federal agency, which forecasted that American debt will hit $50 trillion by 2033.
The country's debt will jump from 98% of GDP to 181% by 2053, CBO warned, placing them in the ballpark of rations only seen during WWII and the Covid pandemic.
"Such high and rising debt would slow economic growth, push up interest rates to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook," CBO warned.
Fitch explained its decision saying it was due to "expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance."
