The wall of public debt that Americans do not want to see – Technologist

When Wall Street goes, everything goes. In the fall of 2023, Americans were gripped by panic: Interest rates were soaring above 5% for the first time since 2007, while the public deficit was out of control, amounting to $1.695 billion (€1.573 billion), or 6.3% of gross domestic product (GDP), for the fiscal year ending September 30, 2023. Olivier Blanchard, a French neo-Keynesian economist and former chief economist at the International Monetary Fund (IMF), even issued a warning about a potential “explosion” in debt levels.

Subsequently, interest rates gradually decreased as inflation dropped, settling at around 4.1%. Concurrently, the stock market soared: The S&P 500 index, a benchmark for large companies, has surged 20% since the October 2023 low. Since then, the cost of borrowing has fallen again and tax revenues are on the rise again thanks to stock market capital gains. As a result, the deficit is set to fall back to $1.6 trillion for the fiscal year ending September 30, 2024, according to the latest Congressional forecasts.

However, it’s “unsustainable,” reminded Jerome Powell, president of the US Federal Reserve, on CBS on February 3. “I think we know that we have to get back on a sustainable fiscal path. And I think you’re starting to hear now from people in the elected branches who can make that happen. It’s time that we got back to that focus.”

The statement is not accurate. Both presidential candidates, Donald Trump and Joe Biden, increased the deficit, the former through tax cuts, the latter through social spending. After explaining that he was the US president who had cut the budget deficit the most, Biden doubled it between 2022 and 2023, while the debt reached $34.15 trillion. Candidate Trump, on the other hand, is not talking about reducing the deficit.

Reducing healthcare costs

According to IMF projections, public debt stood at 120% of GDP in 2022 and is set to rise to 135% of GDP in 2025, a record, due in particular to soaring interest rates. As Adam Posen, president of the Peterson Institute, explains, there are fairly simple levers for reducing public spending. First, curb pension spending, by removing the ceiling on contributions and slightly raising the retirement age. Secondly, reduce healthcare spending, which is twice as high as the average for developed countries, and half of which is publicly financed. At a time of international geopolitical tensions and the growing risk of a conflict with China over Taiwan, reducing the country’s huge military spending seems unlikely.

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