Vantage | Why US' $34 trillion debt can become world's problem

The wars in Ukraine and West Asia are causing instability. But apart from these conflict zones, there is a new crisis emerging—a 34 trillion-dollar debt bomb—growing bigger by the day. This is a cause of global anxiety. This debt bomb belongs to the United States of America—the richest country—and also the biggest debt-holder in the world. When it explodes, this bomb will cause global devastation. This warning comes from Jamie Dimon, the boss of America’s biggest bank and CEO of JPMorgan Chase. Dimon says US debt endangers global security. As of today, the US’ borrowing stands at 120 percent of its GDP. By 2035, this number is set to hit 130 percent. This level of debt is dangerous. “If you look at that 100 percent debt to GDP by [2035], I think it’s going to be 130 percent, and it’s a hockey stick. That hockey stick doesn’t start yet, but when it starts, markets around the world… there will be a rebellion.” Hockey stick is a scenario where high borrowing leads to higher costs and charges to service the debt. This is risky for both America and its allies; many of them have bought debt issued by the US government or government bonds. The exposure is quite large, around 7.6 trillion dollars. Countries around the world have bought this debt, and the most vulnerable of them are American allies, among which Japan, which owned $1.1 trillion as of November 2023, is at the top, followed by China ($782 billion), the UK ($716 billion), Luxembourg ($371 billion), and Canada ($321 billion). The US government debt is considered a solid investment. As Joe Biden says, we are able to borrow because we always pay our debt. But is that really a guarantee? What happens if the loans keep piling up and the US is unable to catch up? What happens if the US defaults? All of these countries will lose money. Their economies will be exposed. As aforesaid, some of them are military allies of the US. Canada and the UK are members of NATO. Japan is central to US defence strategy in the East. A default by America would leave them weaker, and this is the risk the JPMorgan chief is referring to. The other big risk is to America itself. Such high levels of debt will hurt its defences.

Untamed debt could lead to a budget squeeze. The US is the world’s biggest defence spender. In 2022, Washington spent over $800 billion on defence. In contrast, the national debt surpassed 100 percent of the country’s GDP. Which brings us to the obvious question: How did the US end up with so much debt in the first place? Ironically, one key reason is America’s many conflicts—the post-9/11 wars. Through fiscal year 2022, the US federal government has spent and obligated $8 trillion on the post-9/11 wars in Afghanistan, Pakistan, Iraq, and elsewhere. The US has spent or sanctioned around 8 trillion dollars on its wars. They have spent these on the wars in Afghanistan and Iraq and on strengthening America’s global security presence. These wars were financed almost entirely through debt. Since 2001, these loans have ballooned, and the interest keeps piling on. Experts say the US borrowed some two trillion dollars for its “Global War on Terror”. Interest payments on the $2 trillion of existing war debt would rise to over $2 trillion by 2030 and to $6.5 trillion by 2050! So America’s many wars are burning a hole in the taxpayer’s pocket, and yet they haven’t tightened their belt. This debt is now the biggest vulnerability of the US, and it is not an external enemy. This should worry the world. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.