The skyrocketing global debt has become the main problem for the global economy – even if this is being hidden for obvious reasons by the global political elite and the systemic media. Public deficits for anyone with even the slightest understanding of the workings of the economy can neither act as reserves for the private sector nor as a tool for growth – experience shows that they are the shortest path to bankruptcy.
Bloating public debt burdens real economic activity, hinders productivity, raises taxes and drains private sector funding. With each passing year, the proportion of global debt increases, the burdens on citizens become more burdensome, and the risks of another massive debt crisis increase.
Global financial markets are ignoring a record rise in global debt levels to $313 trillion in 2023, marking yet another worrying milestone and highlighting the vicious cycle the global economy has entered through a process of massive leverage.
According to the projections of the Congressional Budget Office (CBO), the budget deficit of the United States is typical for the next four years, reaching an average of 5.8% of GDP without even considering the scenario of economic recession. Let us recall as a trifle the fact that the limit for the fiscal deficit according to the Stability Pact forecasts is 3% of GDP, so if the USA were a member of the Eurozone, the European Commission would enter the excessive deficit procedure and would be forced to adopt reforms.
By 2033, a “hole” in the budget of the order of 6.9% of GDP is expected for the USA based on the data. Not surprisingly, the economy, even using optimistic scenarios, stalls and will show an upward trend in real GDP of 1.8% between 2028 and 2033, 33% less than in 2026-2027, which is already 25% below historical average.
Collapse of tax revenue
This whole mess could be solved by raising taxes, but the reality is that there is no measure that will cover a $2 trillion annual budget “hole” with additional annual tax collections. This, of course, comes with an optimistic scenario without a recession or the impact on economic activity from a higher tax burden.
Deficits are always a problem on the expenditure side of the budget. Citizens are led by mainstream propaganda to believe that lower growth, falling real wages and persistent inflation are external factors that have nothing to do with government policies, but this is wrong.
Deficit spending leads to money printing and erodes the purchasing power of the currency while destroying opportunities for private sector investment. The entire burden of higher taxes and inflation falls on the middle class and small businesses.
The reality
Markets never react to rising risks until real economic data comes to the fore. The danger develops slowly but manifests itself suddenly and events take the form of an avalanche. This is why governments are so comfortable adding more public debt.
Politicians believe that bull markets and low bond yields are signs of legitimizing their policies, and even as debt service costs rise to alarming levels, they simply shift the burden to the next government.
The result
- Corrosive potential growth,
- weaker productivity and
- destroying the middle class through higher taxes and persistent inflation.
Where are the responsibilities assigned?
Debt crises occur and governments never pay attention to the risks because they don’t pay for the consequences. Furthermore, when a debt crisis occurs, most governments will blame the markets and short sellers.
The latest figures from the Institute of International Finance (IIF) show that the dangerous trend of rising debt has accelerated. A whopping $15 trillion over the course of a year underscored the alarming rate at which the debt burden was escalating.
To put that amount in perspective, it’s worth noting that just a decade ago, the total global debt tally was a comparatively modest $210 trillion—a stark reminder of the exponential growth trajectory debt has embarked on.
Developing economies are leading the way in this debt onslaught, with debt-to-GDP ratios reaching unprecedented heights.
Emerging markets are following the trend of developed ones, adding structural challenges and vulnerabilities to the financial system, as the accumulation of debt leads to the destruction of the local currency and reduced confidence in domestic monetary systems.
The disaster of over-indebtedness
The implications of this over-indebtedness are significant, including weaker economic growth and a risk to financial stability.
At its core, rising global debt represents a fundamental imbalance—an imbalance between present consumption and future liabilities, between short-term spending and long-term sustainability.
“Cheap” government debt supposedly promises higher growth and better opportunities for citizens, but delivers only weaker growth, higher volatility and an increasingly worthless currency.
If you wonder why wages are paying for fewer goods and services and why the middle class is finding it increasingly difficult to approach past levels of prosperity, blame money printing and high government debt.
- It erodes the purchasing power of savings and wages under the false promise of growth and security that never arrives.
- As debt levels swell, so do the risks of crises, bankruptcies and global financial dominoes.
- Debt entails printing worthless currency, while confidence in the purchasing power of newly issued money falls like a card at every crack in real economic activity.
- Furthermore, a sudden loss of market confidence or a liquidity crisis in one corner of the globe can quickly lead to a full-blown financial crisis with far-reaching systemic effects.
To think that this will not happen in the United States or the Eurozone is short-sighted and certainly reckless.
The interconnected nature of the global economy means that no state operates in isolation, economies do not operate in a protective ‘bubble’ and the effects of a debt crisis in one sector can have devastating consequences for the entire financial ecosystem.
The long-term devastating consequences
However, the long-term consequences of excessive debt accumulation are just as worrying as the economic shocks.
High levels of debt act as a brake on economic growth, diverting resources from productive investment and stifling innovation and entrepreneurship.
In addition, the debt service burden imposes a heavy toll on future generations, diverting funds away from infrastructure spending and placing a huge burden on future taxpayers.
The end of the United States dollar will not come from external threats but from the government’s own irresponsible actions and fiscal derailment. Initially cheap debt is always extremely expensive.
