Debt, debt, and more debt

In his recent post, Balaji Srinivasan writes about how the USA, the E.U., and several other entities face a looming sovereign debt crisis. The crisis is driven by excessive borrowing and mismanagement of fiscal policies. For instance, the Federal Reserve issued more emergency loans in 2023 than during the 2008 financial crisis, signaling severe stress in the banking system. Currently, U.S. borrowing surpasses levels seen during COVID-19, but now at much higher interest rates.


Interest payments on national debt have become the largest government expense, exceeding defense spending. This unsustainable borrowing has led to a significant devaluation of the U.S. dollar, which has lost at least 25% of its value in four years. Compounding the issue, China, a major holder of U.S. Treasuries, has been reducing its holdings. At the same time, BRICS nations increasingly buy gold, moving away from the dollar as a reserve currency.


Global trade is also shifting away from the dollar, especially with China conducting transactions in its own currency. The true debt of the U.S., including all liabilities, is estimated at $175.3 trillion, surpassing any historical empire, indicating an unprecedented fiscal crisis. This situation underscores the critical need for the U.S. to address its fiscal policies, as these reforms are crucial to preventing severe economic upheaval.
 
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