Thursday, August 25, 2016

The US Position is Untenable

US Fed debt 2000-2045
The US Congressional Budget Office (CBO) has newly released a projection of Federal debt 2016-2046.
The CBO analysis shows that Federal debt is on path to increase from 75% of GDP to 146% of GDP in 2016. These figures exclude state & local government debt of approximately 16% of GDP (source: Fed.Reserve Z1,D1 and BEA.gov), meaning that the total public debt in the USA is on track to increase from 90%+ to 160%+ of GDP.
A public debt of 100%-200% of GDP is possible in Japan and Italy, where nearly all public debt is owned nationally—in Japan, by (often state-promoted) enormous private entities. However, for the USA, such high public debt figures are bound to lead to a fundamental crisis of non-confidence in the US dollar. 
Falling dollar rates and rising interest rates will incur still higher deficits to pay the interests on the public debt. 
A vicious circle threatens the US economy.
When and how it may start, we don’t know.
The biggest driver of the US Federal debt is the aging of the US population. Today 15% of Americans are aged 65+. This percentage will increase by two thirds, so that by 2060 about 24% of the US population will be 65+. Until now, the USA has benefited from a young population. The strain on medicare and social spending of an aging population, even with the still limited entitlements in the USA, will be enormous.
The CBO has calculated, that just to keep the Federal debt at its present level, the balance between tax revenues and federal expenditures must be improved by 1.7% of GDP—every year the next 30 years. In other words, tax revenue must increase and government expenditures must be curtailed.
The US economy is becoming less and less competitive. One reason for this is because the USA has some of the worst 3rd world-like public infrastructure in the western world. Roads, bridges and railways in the USA are a sham. High-speed trains are non-existent. Not only is China building far more kilometers of inter-state high-ways than the US, but it is also one of the world’s leading countries in the field of high-speed trains; in fact, China may become the main-supplier of America’s first high-speed railway line.

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