US public finances are at risk of derailment in the future. Philip Swagel, director of the US Budget Office, warns against this. The warning comes in light of the enormous national debt America is struggling with. “When you say that as the director of the US CBP, that’s something,” says economist Edin Mujakic.
Why does America have such a large national debt?
It has to do with the dollar. It is practically a global currency. This means that America can buy more than any other country for one simple reason: the rest of the world needs dollars, and they’re going to invest those dollars in America. As a result, the US can borrow more and have more debt without the rest of the world losing confidence in it. But that doesn’t mean you can always have more debts. This is what this man is now pointing out. He says that the dollar is a world currency that provides security, but it doesn’t protect against everything.
‘This is a huge problem for the future’
So what is he warning about?
If the US is not careful, he says, it could experience a moment similar to that experienced by former British Prime Minister Liz Truss. It was then announced that the UK would borrow more. This created even more pessimism from the financial markets, resulting in a very rapid increase in interest rates. This is what this man is now pointing out.
Now we face an election where all sorts of tax promises are made. Is it still influential?
A major tax cut has been implemented under the administration of US President Donald Trump. There is often a shelf life, meaning that reductions are reversed after a few years. It will happen next year. Now, Swagel says, all estimates showing debt levels are too high assume the tax cuts don’t continue. But if you look at the Democrats or the Republicans, you see that neither of those parties wants to increase the burden on citizens and corporations in America. They both have very difficult plans to reconcile with the stability of American public finances.
What does Swagel want now?
He indicated that next year will be a very important year. Because if you continue the tax cuts, there will be billions of dollars more in debt. This man is now warning that government finances will not last. Not long ago, Fed Chairman Jerome Powell did the same thing. If you are sitting in the White House now, or thinking about sitting there, you need to listen to these two men. This is a big problem for the future.
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