For the first time, the debt of the American government has exceeded the symbolic mark of 40,000 billion dollars, according to data published Wednesday August 19 by the Ministry of Finance.
After the last issue of bonds on Tuesday, the US Treasury debt now reaches $40,047 billion, due to an increase in both health and social security borrowing, but also interest paid.
This is a faster increase than expected, with the Congressional Budget Office (CBO) so far anticipating that the federal government’s debt will be around $39.4 trillion by the end of the year.
It comes as concerns over inflation, particularly with the conflict in the Middle East and soaring energy prices, have taken borrowing costs to levels not seen in years.
Also readMoody’s downgrades US debt rating, blow to Trump’s economic policy
The yield on long-term Treasury bonds (30 years) thus reached its highest level since 2007 on Tuesday. This forces the State to spend ever more to refinance itself, at the same time worsening its debt.
The Ministry of Finance intervened on Wednesday by announcing larger buybacks of long-term bonds from September, which reassured investors and eased rates.
Deficit estimated between 6% and 7% of GDP
“It is well known that the federal government has a deficit rate that is not sustainable,” said Jessica Riedl, budget specialist for the Brookings Institution.
The country’s debt has more than doubled since the 2008 financial crisis and now represents a ratio of nearly 125% of US gross domestic product (GDP).
While deficits of between 3% and 4% of GDP were once cause for concern in financial markets, Jessica Riedl pointed out that these levels were now around 6% to 7% of GDP. “It made the markets more nervous,” she added.
Donald Trump promised during his two terms to cut government spending and reduce the annual deficit.
Finance Minister Scott Bessent had indicated that his objective was to reduce the American deficit to 3% of GDP. However, this has widened in recent months, notably due to the reimbursement of customs duties to businesses, canceled by the Supreme Court in February.
Also readHow the issue of American debt made Donald Trump back down on customs duties
Tax cuts and military spending, particularly linked to the conflict with Iran, have also swallowed up many billions of dollars.
Analysts point out that there is no level of debt relative to GDP that automatically triggers a crisis. They also recall that the debt held by the public – which excludes the claims of one federal administration on another – is generally a more closely followed indicator than the total debt.
“But from a psychological point of view, it is these benchmarks which alert the financial markets to the need to look again at the increase in debt”, according to Jessica Riedl.
Also readInflation, employment, customs surcharges: where is the American economy after a year of Trump?
Federal borrowing jumped during the 2007-2009 financial crisis and increased sharply again during the recession caused by Covid-19, recalls to Agence France-Presse (AFP) Caleb Quakenbush, director of budgetary policy at the Bipartisan Policy Center.
According to him, the trajectory of American budgetary spending has not been addressed by Congress or by American administrations in a “significant or lasting” way, enough to pose serious challenges in the event of a new crisis.
With AFP
