Analysts believe the United States has leveraged the dollar's supremacy to shift its risks and extract global wealth through interest rate fluctuations.
by Xiong Maoling, Yu Rong
WASHINGTON, July 31 (Xinhua) -- The U.S. federal government's debt has surpassed yet another psychological threshold amid widespread concerns.
According to data released by the U.S. Treasury Department on Monday, the federal government's total public debt has surpassed 35 trillion U.S. dollars for the first time, as recorded at the end of last week, equivalent to the combined economic output of China, Germany, Japan, India and Britain.
Why is the U.S. national debt growing at an accelerated pace? Why can't calls from all sectors awaken a political conscience to address the issue? Has the scale of the debt reached a critical crisis point?
Upon reviewing the historical trajectory of U.S. debt, it has become clear that the country has developed an addiction to borrowing, depending on the dollar's dominant position in the global economy. The debt scale has surged on an unsustainable path, driven by a failing political system and ineffective governance, causing ongoing harm both domestically and globally.
At its core, the United States takes on new debt to pay off the old, and this is largely due to the dollar's dominance, some have argued. They believe the United States has leveraged the dollar's supremacy to shift its risks and extract global wealth through interest rate fluctuations.
However, its long-term addiction to borrowing has led to an inability to curb its profligate habits, thus planting the seeds of a debt crisis. In the long run, it could come back to haunt the country.
As the U.S. national debt approaches 35 trillion dollars, JPMorgan analysts have warned investors in a new memo about the risks associated with rising budget deficits and high sovereign debt levels. They advised investors not to expect any significant improvement in the U.S. fiscal outlook in the near term.
"The problem will be caused by the market and then you will be forced to deal with it, and probably in a far more uncomfortable way than if you dealt with it to start," JPMorgan Chase CEO Jamie Dimon said earlier this year.
"I think America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more, and that is important for the world," Dimon added.
Barry Bosworth, economist and senior fellow at the Brookings Institution, also argued that while it is not an immediate crisis, it will become more constraining in future years. "The growing public debt will slowly crowd out private investment and increase foreign finance and control of the domestic economy," he said.
Desmond Lachman, a senior fellow at the American Enterprise Institute and a former official at the IMF, said that the "dangerous trajectory" poses "serious questions for the dollar" and inflation's long-run outlook. Foreigners may be unwilling to finance the U.S. government if they perceive no real willingness to bring the country's public finances under control.
"That could lead to a dollar crisis, and it could also require the Federal Reserve to print money to finance the government," Lachman said. "That would be a sure recipe for a renewed surge in inflation."■
