The world economy has been put on red alert with an expert warning a US recession is now “inevitable” and “political dysfunction” is edging America to the brink of a government shutdown.
US federal debt has exploded to $33trillion for the first time in the country’s history, igniting fears the world’s largest economy is about to plunge into recession.
During the last five years, the US has added $11.5trillion in debt and is on course for $1trillion in annual interest expense. This follows the debt ceiling crisis that occurred in June.
The recent chaos engulfing the House of Representatives means there are just four weeks for Republicans and Democrats to agree on a new government funding bill. Failure to do so would lead to a government shutdown that would have disastrous consequences for millions of federal workers.
Michael Hewson, chief market analyst at CMC Markets, told Daily Express US: “Political dysfunction is the biggest risk facing the US economy, and the removal of Speaker Kevin McCarthy, making a new Government shutdown on November 17 more likely.
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“The surging US federal debt is only a problem if markets lose faith in the political checks and balances that keep the US financial system ticking over.
“The US isn’t unique in its debt problems and does have the benefit of being the reserve currency of the world.”
But he warned: “Some form of recession is inevitable. It’s now really all about degree and timing.”
Last month, Treasury Secretary Janet Yellen tried to calm fears around the US economy, telling CNBC: “The president has proposed a series of measures that would reduce our deficits over time while investing in the economy, and this is something we need to do going forward.”
But one expert has warned the US is in danger of defaulting on its massive federal debt in a move that would send shockwaves around the world.
Andrew Sanders, senior lecturer in Politics and International Relations at De Montfort University, told Daily Express US: “The debt, as seen as a percentage of GDP, remains over 100 percent but it has dipped slightly since it was 134.8 percent back in 2020.
“Where to make spending cuts is a big problem as the largest chunk of federal debt, and the largest part of Government spending is social security.
“Harder pushes to block the raising of the debt ceiling from within the House of Representatives might yet cause the US to default on its debt, which would have enormous, international, ramifications.”
The expert also warned the spiralling debt is something Republican voters in particular are keeping a close eye on in the months leading up to the presidential election in 2024 – something that could prove to be a huge problem for Joe Biden.
He continued: “The federal debt is such a large figure that no ordinary US citizen can really comprehend that amount of money and on a day-to-day level it really doesn’t impact a lot of people in any way.
“It does, however, poll as something that people really care about – well over half of people in recent polls cite the importance of reducing the budget deficit as a key priority.
“It being a stronger issue among Republicans, both because Republican voters typically value conservative economic policies more highly and because the Republicans are framing this as an issue that is being caused by Biden.”
