US debt is now $37trn – should we be worried?
Since the beginning of this year, the dollar has fallen 10% against the pound and 15% against the euro.Although US borrowing costs have been steady overall, the difference between the interest rates paid on longer-term loans versus shorter-term loans - what's known as the yield curve - has increased, or steepened, signalling increased doubts about the long-term sustainability of US borrowing.And that is despite the fact that the US has lowered interest rates more slowly than the EU and the UK, which would normally make the dollar stronger because investors can get higher interest rates on bank deposits.The founder of the world's biggest hedge fund, Ray Dalio, believes that US borrowing is at a crossroads.On its current trajectory he estimates the US will soon be spending $10tn a year in loan and interest repayments."I am confident that the [US] government's financial condition is at an inflection point because, if this is not dealt with now, the debts will build up to levels where they can't be managed without great trauma," he says.
So what might that trauma look like?The first option is a drastic reduction in government spending, a big increase in taxes or both.Ray Dalio suggests that cutting the budget deficit from its current 6% to 3% soon could head off trouble in the future.Trump's new budget bill did cut some spending, but it also cut taxes more, and so the current political trajectory is going the other way.Secondly, as in previous crises, the US central bank could print more money and use it to buy up government debt - as we saw after the great financial crisis of 2008.But that can end up fuelling inflation and inequality as the owners of assets like houses and shares do much better than those who rely on the value of labour.The third is a straightforward US default. Can't pay won't pay. Given that the "full faith and credit of the US Treasury" underpins the entire global financial system, that would make the great financial crisis look like a picnic.
'Cleanest dirty shirt'
So how likely is any of this?Right now, mercifully, not very.But the reasons why are not actually that comforting. The fact is, whether we like it or not, the world has few alternatives to the dollar.Economist and former bond supremo Mohamed El-Erian told the BBC that many are trying to reduce dollar holdings, "the dollar is overweight and the world knows it, which is why we have seen a rise in gold, the euro and the pound, but it's hard to move at scale so there's really very few places to go"."The dollar is like your cleanest dirty shirt, you have to keep wearing it."Nevertheless, the future of the dollar and the world's benchmark asset - US government bonds - is being discussed at the highest levels.The governor of the Bank of England recently told the BBC that the levels of US debt and the status of the dollar is "very much on [US Treasury] Secretary Bessent's mind. I don't think the dollar is fundamentally under threat at the moment but he is very aware of these issues and I don't think it is something that he underestimates."Debt of $37tn is an unfathomable number. If you saved a million dollars every day, it would take you 100,000 years to save up that much.The sensible way to look at debt is as a percentage of a country's income. The US economy produces income of around $25tn a year.While its debt to income level is much higher than many, it's not as high as Japan or Italy, and it has the benefit of the world's most innovative and wealth creating economy behind it.At home I have a book called Death of the Dollar by William F Rickenbacker in which he warns of the risks to the dollar's status as the world's reserve currency. It was written in 1968. Mr Rickenbacker is no longer with us - the dollar is.But it doesn't mean that its status and value is a divine right.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Mail
41 minutes ago
- Daily Mail
Red state city overwhelmed with influx of new residents: 'Our orange groves are now big box stores'
A Florida town that was once home to sprawling orange groves, scenic views, and abundant small-town charm has seen an influx of residents and new developments but is struggling to keep up. Over the past decade Clermont - that is 25 miles east of Orlando - has seen a population explosion and developers have moved to trade rows of trees for rows of cookie cutter houses and chain franchises. Clermont is now home to just over 50,000 residents according to latest census statistics from July 2024. This has shot up from just over 43,000 residents in April 2020 and from just under 29,000 in April 2010. As development has accelerated, locals have grown concerned over whether the city has the infrastructure to handle such robust change. Residents believe that the biggest issue is over-building. 'It used to be a nice town, now it's wall to wall houses,' local Eva Dole told News 6. 'It used to be you could look up where the Publix is on U.S. 27 and it was all orange groves,' she explained. 'Now it's just a whole bunch of stores.' She said locals initially advocated for stores but she wasn't expecting chains to move in practically overnight. The once rolling groves that Florida and Clermont especially was known for now sit at an all time low - production in the state's orange groves has tanked 92 percent since 2003–2004 season, according to the U.S. Department of Agriculture. The Citrus Tower, built in 1956 to allow visitors to observe the miles of surrounding orange groves, sits in the middle of the city and serves as a reminder about the once flourishing industry with new homes and businesses having sprung up around it. Realtor Bent Danholm who has been working in the area since 2016 has found that families are flocking to Clermont to take advantage of spacious homes at lower prices than the surrounding areas. 'It's cheaper than Winter Garden and Horizon West area but it's still close to jobs in the Orlando area and the price range is a little bit lower,' he told Daily Mail. He said that families are also taking advantage of the influx of jobs in the area, and despite their complaints, locals don't seem to be moving out. 'What I gather from what people tell me there's still quite a good sense of community,' he said. 'I've seen more people wanting to buy there than wanting to move away.' Danholm said - on average - families come in looking to spend around $400,000 on their new home. He added that thanks to the ever-developing landscape there are lots of places to choose from. He said that on-the-market homes in the area have increased from 579 in January to 739 in June. He told Daily Mail: 'Overall, the Clermont market is very well-balanced, slightly favoring the sellers.' Homes in Clermont are seen above. A local realtor told Daily Mail that many of his listings in Clermont contain four or more bedrooms Many of his Clermont listings contain four or more bedrooms, backyard pools, and spacious yards. The average listing currently costs just under $600,000 and contains 3.5 bedrooms and 3 bathrooms within 2,000 square feet, per Danholm's website. Another local realtor Matt Wheatley said that families aren't the only ones coming in swarms to Clermont. 'A lot of pro wakeboarders and now wake surfers choose the Clermont chain of lakes due to its depth and ease of use for training daily,' he told Daily Mail. Their preferred listings include high-end lake front living. However the rush for real estate has also brought with it other issues like traffic. Dole said: 'When you're driving and all you see are buildings and it's bumper-to-bumper traffic, it's very difficult to feel like you're in a small town.' Local Eddy Judson commented on a social media post about the town's development saying: 'We're basically Orlando now.' At the forefront of the changes going forward is Wellness Way, which is using tens of thousands of acres of land to build 15,000 homes, office buildings and shops. The plan, which has been in the works for over a decade, aims to bring high-tech, high-paying jobs to the city. It's also intended to incorporate fitness centers, sports facilities and health and wellness spaces into the community. It's aimed at 'creating a community devoted to health and wellness,' according to First Capitol Group. Lake County Commissioner Sean Parks said: 'I think the growth has brought some good things, but definitely there's a lot of concern right now. 'I tell people, "Look, I live here too. I'm a Central Florida native." I'm shocked at what I see. I get it.' Parks is advocating for growth management, rather than the end of it altogether, which seems to be what many locals want.
BBC News
42 minutes ago
- BBC News
How Trump is using the 'Madman Theory' to try to change the world
Asked last month whether he was planning to join Israel in attacking Iran, US President Donald Trump said "I may do it. I may not do it. Nobody knows what I'm going to do".He let the world believe he had agreed a two-week pause to allow Iran to resume negotiations. And then he bombed anyway.A pattern is emerging: The most predictable thing about Trump is his unpredictability. He changes his mind. He contradicts himself. He is inconsistent."[Trump] has put together a highly centralised policy-making operation, arguably the most centralised, at least in the area of foreign policy, since Richard Nixon," says Peter Trubowitz, professor of international relations at the London School of Economics. "And that makes policy decisions more dependent on Trump's character, his preferences, his temperament." Trump has put this to political use; he has made his own unpredictability a key strategic and political asset. He has elevated unpredictability to the status of a doctrine. And now the personality trait he brought to the White House is driving foreign and security policy. It is changing the shape of the scientists call this the Madman Theory, in which a world leader seeks to persuade his adversary that he is temperamentally capable of anything, to extract concessions. Used successfully it can be a form of coercion and Trump believes it is paying dividends, getting the US's allies where he wants them. But is it an approach that can work against enemies? And could its flaw be that rather than being a sleight of hand designed to fool adversaries, it is in fact based on well established and clearly documented character traits, with the effect that his behaviour becomes easier to predict? Attacks, insults and embraces Trump began his second presidency by embracing Russian President Vladimir Putin and attacking America's allies. He insulted Canada by saying it should become the 51st state of the US. He said he was prepared to consider using military force to annex Greenland, an autonomous territory of America's ally Denmark. And he said the US should retake ownership and control of the Panama 5 of the Nato charter commits each member to come to the defence of all others. Trump threw America's commitment to that into doubt. "I think Article 5 is on life support" declared Ben Wallace, Britain's former defence secretary. Conservative Attorney General Dominic Grieve said: "For now the trans-Atlantic alliance is over."A series of leaked text messages revealed the culture of contempt in Trump's White House for European allies. "I fully share your loathing of European freeloaders," US Defence Secretary Pete Hegseth told his colleagues, adding "PATHETIC". In Munich earlier this year, Trump's Vice-President JD Vance said the US would no longer be the guarantor of European appeared to turn the page on 80 years of trans-Atlantic solidarity. "What Trump has done is raise serious doubts and questions about the credibility of America's international commitments," says Prof Trubowitz."Whatever understanding those countries [in Europe] have with the United States, on security, on economic or other matters, they're now subject to negotiation at a moment's notice."My sense is that most people in Trump's orbit think that unpredictability is a good thing, because it allows Donald Trump to leverage America's clout for maximum gain… "This is one of of his takeaways from negotiating in the world of real estate."Trump's approach paid dividends. Only four months ago, Sir Keir Starmer told the House of Commons that Britain would increase defence and security spending from 2.3% of GDP to 2.5%. Last month, at a Nato summit, that had increased to 5%, a huge increase, now matched by every other member of the Alliance. The predictability of unpredictability Trump is not the first American president to deploy an Unpredictability Doctrine. In 1968, when US President Richard Nixon was trying to end the war in Vietnam, he found the North Vietnamese enemy intractable."At one point Nixon said to his National Security Advisor Henry Kissinger, 'you ought to tell the North Vietnamese negotiators that Nixon's crazy and you don't know what he's going to do, so you better come to an agreement before things get really crazy'," says Michael Desch, professor of international relations at Notre Dame University. "That's the madman theory." Julie Norman, professor of politics at University College London, agrees that there is now an Unpredictability Doctrine. "It's very hard to know what's coming from day to day," she argues. "And that has always been Trump's approach."Trump successfully harnessed his reputation for volatility to change the trans-Atlantic defence relationship. And apparently to keep Trump on side, some European leaders have flattered and fawned. Last month's Nato summit in The Hague was an exercise in obsequious courtship. Nato Secretary General Mark Rutte had earlier sent President Trump (or "Dear Donald") a text message, which Trump leaked. "Congratulations and thank you for your decisive action in Iran, it was truly extraordinary," he wrote. On the forthcoming announcement that all Nato members had agreed to increase defence spending to 5% of GDP, he continued: "You will achieve something NO president in decades could get done." Anthony Scaramucci, who previously served as Trump's communications director in his first term, said: "Mr Rutte, he's trying to embarrass you, sir. He's literally sitting on Air Force One laughing at you."And this may prove to be the weakness at the heart of Trump's Unpredictability Doctrine: their actions may be based on the idea that Trump craves adulation. Or that he seeks short-term wins, favouring them over long and complicated that is the case and their assumption is correct, then it limits Trump's ability to perform sleights of hand to fool adversaries - rather, he has well established and clearly documented character traits that they have become aware of. The adversaries impervious to charm and threats Then there is the question of whether an Unpredictability Doctrine or the Madman Theory can work on President Volodymyr Zelensky, an ally who was given a dressing down by Trump and Vance in the Oval Office, later agreed to grant the US lucrative rights to exploit Ukrainian mineral resources. Vladimir Putin, on the other hand, apparently remains impervious to Trump's charms and threats alike. On Thursday, following a telephone call, Trump said he was "disappointed" that Putin was not ready to end the war against Ukraine. And Iran? Trump promised his base that he would end American involvement in Middle Eastern "forever wars". His decision to strike Iran's nuclear facilities was perhaps the most unpredictable policy choice of his second term so far. The question is whether it will have the desired former British Foreign Secretary, William Hague, has argued that it will do precisely the opposite: it will make Iran more, not less likely, to seek to acquire nuclear Desch agrees. "I think it's now highly likely that Iran will make the decision to pursue a nuclear weapon," he says. "So I wouldn't be surprised if they lie low and do everything they can to complete the full fuel cycle and conduct a [nuclear] test."I think the lesson of Saddam Hussein and Muammar Gaddafi is not lost on other dictators facing the US and potential regime change... "So the Iranians will desperately feel the need for the ultimate deterrent and they'll look at Saddam and Gaddafi as the negative examples and Kim Jong Un of North Korea as the positive example." One of the likely scenarios is the consolidation of the Islamic Republic, according to Mohsen Milani, a professor of politics at the University of South Florida and author of Iran's Rise and Rivalry with the US in the Middle East. "In 1980, when Saddam Hussein attacked Iran his aim was the collapse of the Islamic Republic," he says. "The exact opposite happened. "That was the Israeli and American calculation too... That if we get rid of the top guys, Iran is going to surrender quickly or the whole system is going to collapse." A loss of trust in negotiations? Looking ahead, unpredictability may not work on foes, but it is unclear whether the recent shifts it has yielded among allies can be possible, this is a process built largely on impulse. And there may be a worry that the US could be seen as an unreliable broker."People won't want to do business with the US if they don't trust the US in negotiations, if they're not sure the US will stand by them in defence and security issues," argues Prof Norman. "So the isolation that many in the MAGA world seek is, I think, going to backfire."German Chancellor Friedrich Merz for one has said Europe now needs to become operationally independent of the US."The importance of the chancellor's comment is that it's a recognition that US strategic priorities are changing," says Prof Trubowitz. "They're not going to snap back to the way they were before Trump took office. "So yes, Europe is going to have to get more operationally independent." This would require European nations to develop a much bigger European defence industry, to acquire kit and capabilities that currently only the US has, argues Prof Desch. For example, the Europeans have some sophisticated global intelligence capability, he says, but a lot of it is provided by the US."Europe, if it had to go it alone, would also require a significant increase in its independent armaments production capability," he continues. "Manpower would also be an issue. Western Europe would have to look to Poland to see the level of manpower they would need."All of which will take years to build up. So, have the Europeans really been spooked by Trump's unpredictability, into making the most dramatic change to the security architecture of the western world since the end of the Cold War?"It has contributed," says Prof Trubowitz. "But more fundamentally, Trump has uncorked something… Politics in the United States has changed. Priorities have changed. To the MAGA coalition, China is a bigger problem than Russia. That's maybe not true for the Europeans."And according to Prof Milani, Trump is trying to consolidate American power in the global order."It's very unlikely that he's going to change the order that was established after World War Two. He wants to consolidate America's position in that order because China is challenging America's position in that order."But this all means that the defence and security imperatives faced by the US and Europe are European allies may be satisfied that through flattery and real policy shifts, they have kept Trump broadly onside; he did, after all, reaffirm his commitment to Article 5 at the most recent Nato summit. But the unpredictability means this cannot be guaranteed - and they have seemed to accept that they can no longer complacently rely on the US to honour its historic commitment to their in that sense, even if the unpredictability doctrine comes from a combination of conscious choice and Trump's very real character traits, it is working, on some at image credit: Getty Images BBC InDepth is the home on the website and app for the best analysis, with fresh perspectives that challenge assumptions and deep reporting on the biggest issues of the day. And we showcase thought-provoking content from across BBC Sounds and iPlayer too. You can send us your feedback on the InDepth section by clicking on the button below.
Rhyl Journal
44 minutes ago
- Rhyl Journal
Israel to send negotiators to Qatar for Gaza ceasefire talks
The statement also asserted that Hamas was seeking 'unacceptable' changes to the proposal. US President Donald Trump has pushed for an agreement and will host Mr Netanyahu at the White House on Monday to discuss a deal. Inside Gaza, Israeli airstrikes killed 14 Palestinians and another 10 were killed while seeking food aid, hospital officials in the embattled enclave said. And two US aid workers with the Israel-backed Gaza Humanitarian Foundation were injured in an attack at a food distribution site, which the organisation blamed on Hamas, without providing evidence. Weary Palestinians expressed cautious hope after Hamas gave a 'positive' response late Friday to the latest US proposal for a 60-day truce but said further talks were needed on implementation. 'We are tired. Enough starvation, enough closure of crossing points. We want to sleep in calm where we don't hear warplanes or drones or shelling,' said Jamalat Wadi, one of Gaza's hundreds of thousands of displaced people, speaking in Deir al-Balah. She squinted in the sun during a summer heat wave of over 30C. Hamas has sought guarantees that the initial truce would lead to a total end to the war and withdrawal of Israeli troops from Gaza. Previous negotiations have stalled over Hamas demands of guarantees that further negotiations would lead to the war's end, while Mr Netanyahu has insisted Israel would resume fighting to ensure the militant group's destruction. 'Send a delegation with a full mandate to bring a comprehensive agreement to end the war and bring everyone back. No one must be left behind,' Einav Zangauker, mother of hostage Matan Zangauker, told the weekly rally by relatives and supporters in Tel Aviv. Israeli airstrikes struck tents in the crowded Muwasi area on Gaza's Mediterranean coast, killing seven people including a Palestinian doctor and his three children, according to Nasser Hospital in the southern city of Khan Younis. Four others were killed in the town of Bani Suheila in southern Gaza. Three people were killed in three strikes in Khan Younis. Israel's army did not immediately comment. Separately, eight Palestinians were killed near a GHF aid distribution site in the southern city of Rafah, the hospital said. One Palestinian was killed near another GHF point in Rafah. It was not clear how far the Palestinians were from the sites. GHF denied the killings happened near their sites. The organisation has said no one has been shot at its sites, which are guarded by private contractors and can be accessed only by passing Israeli military positions hundreds of metres away. The army had no immediate comment but has said it fires warning shots as a crowd-control measure and only aims at people when its troops are threatened. Another Palestinian was killed waiting in crowds for aid trucks in eastern Khan Younis, officials at Nasser Hospital said. The United Nations and other international organisations have been bringing in their own supplies of aid since the war began. The incident did not appear to be connected to GHF operations. Much of Gaza's population of over two million now relies on international aid after the war has largely devastated agriculture and other food sources and left many people near famine. Crowds of Palestinians often wait for lorries and unload or loot their contents before they reach their destinations. The lorries must pass through areas under Israeli military control. Israel's military did not immediately comment. The GHF said the two American aid workers were injured on Saturday morning when assailants threw grenades at a distribution site in Khan Younis. The foundation said the injuries were not life-threatening. Israel's military said it evacuated the workers for medical treatment. The GHF, a US- and Israeli-backed initiative meant to bypass the UN, distributes aid from four sites that are surrounded by Israeli troops. Three sites are in Gaza's far south. The UN and other humanitarian groups have rejected the GHF system, saying it allows Israel to use food as a weapon, violates humanitarian principles and is not effective. Israel says Hamas has siphoned off aid delivered by the UN, a claim the UN denies. Hamas has urged Palestinians not to cooperate with the GHF. GHF, registered in Delaware, began distributing food in May to Palestinians, who say Israeli troops open fire almost every day toward crowds on roads heading to the distribution points. Several hundred people have been killed and hundreds more wounded, according to Gaza's Health Ministry and witnesses. The UN human rights office says it has recorded 613 Palestinians killed within a month in Gaza while trying to obtain aid, most of them while trying to reach GHF sites. The war began when Hamas attacked Israel on October 7, 2023, killing some 1,200 people and taking 251 others hostage. Israel responded with an offensive that has killed over 57,000 Palestinians, more than half of them women and children, according to Gaza's Health Ministry, which is led by medical professionals employed by the Hamas government. It does not differentiate between civilians and combatants, but the UN and other international organisations see its figures as the most reliable statistics on war casualties.
