ASX closes at fresh record high

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

The Age

2 hours ago

The Age

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

New York: Celebrated historian Sir Niall Ferguson calls it 'Ferguson's Law' – a rule of thumb under which 'any great power that spends more on debt servicing than on defence risks ceasing to be a great power'. In a February paper for the Hoover Institution at Stanford University, where he is a senior fellow, Ferguson explained that in 2024, for the first time in nearly a century, the United States spent a bigger share of gross domestic product paying interest on its debt (3.1 per cent) than it did on defence (3 per cent). And on present assumptions, the Congressional Budget Office (CBO) projects net interest payments will account for nearly double the defence budget by 2050. 'This unpleasant fiscal arithmetic poses a clear and present danger not merely to the US economy, but also to the position of the United States as the world's dominant military power,' Ferguson says. 'It must be a matter of urgent concern for American policymakers to restore an appropriate relationship between spending on debt service and spending on national security.' Enter Donald Trump and his One Big Beautiful Bill. A grab bag of Trump's policy priorities, the bill bounced its way through Congress this week to arrive at the president's desk for signing on Friday, Independence Day (Saturday AEST), in a highly symbolic display of his sway over the Republican Party and indeed the country. Loading It caps an extraordinary two weeks in which Trump bombed Iran, dominated a NATO summit, shepherded a ceasefire between Israel and Iran, won a significant and highly consequential victory in the US Supreme Court, opened a detention centre nicknamed 'Alligator Alcatraz' and, now, will ink his signature piece of legislation. The One Big Beautiful Bill Act (OBBB), which is its official title, has at its centre the permanent extension of Trump's 2017 tax cuts for individuals and businesses, which were due to expire at the end of this year. According to the nonpartisan CBO, those tax cuts contribute the lion's share to a total increase in the budget deficit of $US3.25 trillion ($4.95 trillion) over the next 10 years – $US3.94 trillion including interest. The libertarian Cato Institute think tank, which advocates limited government, said that under what it called 'realistic assumptions' about economic growth, extensions of tax giveaways or delays to spending reform, the bill could actually add more than $US6 trillion to the national debt. Big, beautiful, bonkers? 'The debt burdens in this bill are unwelcome and dangerous,' says Judge Block, a senior fellow at the New York-based Manhattan Institute, a conservative think tank. 'It's one of the more expensive pieces of legislation in modern memory.' The Trump administration, and many Republicans, see it differently. In their view, the bill actually reduces debt as it contains savings measures while mostly rolling over existing tax policy. Otherwise, Americans would be hit with an enormous tax increase. The CBO, on the other hand, bases its calculations off existing law, under which taxes revert to their pre-2017 levels. Block said Republicans could largely justify the 2017 Trump tax cuts because they were paired with significant simplifications of the tax code. That is not the case this time, he said, though there were positive aspects to the OBBB, such as immediate tax write-offs for research and development. 'To a large extent, most of the debt here is coming from giveaways such as the overtime credit, the tax on tips deduction,' he said. 'Those can't really be justified as tax simplification or a means toward economic growth, which makes their deficit-increasing aspect all the more worrying.' Introducing tax deductions for tips and overtime was a major Trump election promise, one he advertised with much fanfare in cities such as Las Vegas. There's a major catch, though: the policy expires at the end of 2028, when Trump leaves office. As Block points out, there are fairly substantial spending cuts in the bill, which Republicans have not always dared reach for in the past. The biggest is a record $US1 trillion cut to Medicaid, which provides health coverage for low-income adults and families. The CBO estimates this will lead to 11.8 million more people living without health insurance by 2034. The White House maintains there are no 'cuts' to Medicaid in the OBBB. Rather, it says the savings come from removing illegal aliens from the program, enforcing work requirements and protecting Medicaid 'for the truly vulnerable'. Medicaid was a focus of a record-breaking speech by the Democrats' leader in the House of Representatives, Hakeem Jeffries, who began before dawn on Thursday local time and spoke for nearly nine hours. Languishing without the numbers in either chamber of Congress, and with Trump stamping his authority on every aspect of American life, the listless Democratic Party was hoping to send a signal to angry voters, even if it was only able to delay the inevitable, with the OBBB passing quickly after Jeffries finally sat down. '[Seventeen] million people just lost healthcare,' posted the Democratic governor of California, Gavin Newsom, within minutes of the bill's passage. '[Eighteen] million kids just lost school meals. Three million Americans just lost food assistance. And $US3.5 trillion was added to the deficit. All for a tax cut for Trump's billionaire donors.' Newsom called it 'the ultimate betrayal'. In New York, young hedge fund manager Spencer Hakimian was also aghast. The 26-year-old, who has built an online following of 150,000 criticising Trump over tariffs, said history had shown debt accumulation is the ruin of empires. 'You can't keep adding debt with no limit. Both parties are wrong about this, it's a complete fallacy,' he said. And it was facetious for the administration to argue that the tax cuts didn't really contribute to debt, Hakimian said. The bill lifts the debt ceiling by another $US5 trillion. 'Why would they be raising the debt limit if they weren't adding to the debt?' The feeling on Wall Street is mixed, Hakimian says, but most people are agnostic. Markets are already at all-time highs, with the US economy defying expectations, unemployment staying low and Trump's tariff threats largely petering out. That matches the assessment of The Economist 's British editor-in-chief Zanny Minton Beddoes, who said the mood among New York financiers at the Aspen Ideas Festival was insouciant, and ambivalent about the debt. 'Call me a European grinch, but I felt I had arrived on planet Pangloss,' she told subscribers in a note after the 'big, beautiful, bonkers' bill passed. 'I worry that Trumponomics 2.0 is eroding the foundations of America's economy in more fundamental ways than many people are willing to admit.' Ticking time bomb Steven Hamilton, an Australian assistant professor of economics at George Washington University, says the debate over how to measure the One Big Beautiful Bill's impact on debt is moot. The point, he says, is that it presumes current policy can go on forever, and 'letting current policy go on forever is nuts'. 'Within 10 years, US debt to GDP will be approaching 130 per cent, which is well above any time in US history, well above World War II and beyond the level anyone really thinks is sustainable,' Hamilton says. 'That's with the debt we have, and what we're planning to do is increase debt by another 25 per cent over the next 10 years. What we actually needed from the bill is a serious fiscal consolidation effort.' Likewise, Block says the bill's savings measures effectively concede Congress is not going to approve any such consolidation, and will simply leave the 'dire' state of US debt in place. Loading Many analysts believe a sovereign debt crisis is a matter of when, not if. About a month ago, JPMorgan Chase chief executive Jamie Dimon said a crack in the bond market was 'going to happen'. Hamilton believes it is coming sooner rather than later. 'At some point in the next 10 years, there is going to be a reckoning where the music stops and the markets say, 'well, we're not going to fund this any more',' he says. 'You cannot keep going along this pathway.' A devaluing of US debt would have dire consequences for the global financial market and for Australia that would eclipse, by far, the 2008 Global Financial Crisis. Even if such a collapse doesn't happen on its own, says Hamilton, the US debt burden leaves it in a precarious position to deal with a crisis, such as a future pandemic, war with China, or some sort of crisis arising from the advent of artificial intelligence technology. 'There are all sorts of things we don't know,' he says. 'We're exposing ourselves to enormous risk.' Much of that risk depends on what happens to interest rates in coming years. Low rates between the GFC and the COVID-19 pandemic made US debt more affordable. That era is now over. Loading Trump has been badgering Federal Reserve chair Jerome Powell for months to lower interest rates, saying it is costing the US government hundreds of billions of dollars a year in interest payments on its debt. But it is the long-term trajectory that matters, and Block says the consequences could be disastrous. 'If those interest rates continue to go up, that could be by far the most drastic threat to the American economy and America writ large,' he says. More than the threat posed by Russia or China? 'I don't think that's an exaggeration.'

Stocks dip, dollar slumps as Trump deal deadline looms

The Advertiser

6 hours ago

The Advertiser

Stocks dip, dollar slumps as Trump deal deadline looms

Stocks have slipped despite record highs for Wall Street overnight as US President Donald Trump's deadline for trade deals looms. The dollar retraced some of Thursday's gains with US markets already shut for the holiday-shortened week as traders considered the impact of the sweeping spending bill that Trump is expected to sign into law later in the day. The pan-European STOXX 600 index fell 0.6 per cent on Friday, driven in part by losses on spirits makers such as Pernod Ricard and Remy Cointreau after China said it would impose duties of up to 34.9 per cent on brandy from the European Union starting July 5. US S&P 500 futures edged down 0.5 per cent following a 0.8 per cent overnight advance for the cash index to a fresh record closing peak. Wall Street is closed on Friday for the Independence Day holiday. Trump said Washington would start sending letters to countries on Friday specifying what tariff rates they would face on exports to the United States, a clear shift from earlier pledges to strike scores of individual deals before a July 9 deadline when tariffs could rise sharply. Investors were "now just waiting for July 9", said Tony Sycamore, an analyst at IG, with the market's lack of optimism for trade deals responsible for some of the equity weakness in export-reliant Asia, particularly Japan and South Korea. At the same time, Thursday's jobs data showed "the US economy is holding together better than most people expected, which suggests to me that markets can easily continue to do better" from here, Sycamore said. Investors cheered the surprisingly robust jobs report on Thursday, sending all three of the main US equity indexes climbing in a shortened session. Following the close, the House narrowly approved Trump's signature, 869-page bill, which would add $US3.4 trillion ($A5.2 trillion) to the nation's $US36.2 trillion debt, according to the non-partisan Congressional Budget Office. Trump said he expected "a couple" more trade agreements after announcing a deal with Vietnam on Wednesday to add to framework agreements with China and Britain as the only successes so far. US Treasury Secretary Scott Bessent said earlier this week that a deal with India was close. However, agreements with Japan and South Korea, once touted by the White House as likely to be among the earliest to be announced, appear to have broken down. The US dollar rallied overnight, taking it up as much as 0.7 per cent versus a basket of major peers after the robust payrolls data saw traders take any expectations for a Federal Reserve interest rate cut in July off the table. It ended Thursday with a 0.4 per cent rise. On Friday, the US currency gave back a little of those gains, slumping 0.4 per cent to 144.31 yen and sliding 0.2 per cent to 0.7936 Swiss franc. The euro added 0.2 per cent to $US1.1773, while sterling held steady at $US1.3662. The US Treasury bond market is closed on Friday for the holiday, but 10-year yields rose 4.7 basis points to 4.34 per cent while the two-year yield jumped 9.3 bps to 3.882 per cent. Gold firmed 0.4 per cent to $US3,339 per ounce, on track for a weekly gain as investors again sought refuge in safe-haven assets due to concerns over the US's fiscal position and tariffs. Brent crude futures fell seven cents to $US68.73 a barrel, while US West Texas Intermediate crude was last seen flat at $US67.02. Stocks have slipped despite record highs for Wall Street overnight as US President Donald Trump's deadline for trade deals looms. The dollar retraced some of Thursday's gains with US markets already shut for the holiday-shortened week as traders considered the impact of the sweeping spending bill that Trump is expected to sign into law later in the day. The pan-European STOXX 600 index fell 0.6 per cent on Friday, driven in part by losses on spirits makers such as Pernod Ricard and Remy Cointreau after China said it would impose duties of up to 34.9 per cent on brandy from the European Union starting July 5. US S&P 500 futures edged down 0.5 per cent following a 0.8 per cent overnight advance for the cash index to a fresh record closing peak. Wall Street is closed on Friday for the Independence Day holiday. Trump said Washington would start sending letters to countries on Friday specifying what tariff rates they would face on exports to the United States, a clear shift from earlier pledges to strike scores of individual deals before a July 9 deadline when tariffs could rise sharply. Investors were "now just waiting for July 9", said Tony Sycamore, an analyst at IG, with the market's lack of optimism for trade deals responsible for some of the equity weakness in export-reliant Asia, particularly Japan and South Korea. At the same time, Thursday's jobs data showed "the US economy is holding together better than most people expected, which suggests to me that markets can easily continue to do better" from here, Sycamore said. Investors cheered the surprisingly robust jobs report on Thursday, sending all three of the main US equity indexes climbing in a shortened session. Following the close, the House narrowly approved Trump's signature, 869-page bill, which would add $US3.4 trillion ($A5.2 trillion) to the nation's $US36.2 trillion debt, according to the non-partisan Congressional Budget Office. Trump said he expected "a couple" more trade agreements after announcing a deal with Vietnam on Wednesday to add to framework agreements with China and Britain as the only successes so far. US Treasury Secretary Scott Bessent said earlier this week that a deal with India was close. However, agreements with Japan and South Korea, once touted by the White House as likely to be among the earliest to be announced, appear to have broken down. The US dollar rallied overnight, taking it up as much as 0.7 per cent versus a basket of major peers after the robust payrolls data saw traders take any expectations for a Federal Reserve interest rate cut in July off the table. It ended Thursday with a 0.4 per cent rise. On Friday, the US currency gave back a little of those gains, slumping 0.4 per cent to 144.31 yen and sliding 0.2 per cent to 0.7936 Swiss franc. The euro added 0.2 per cent to $US1.1773, while sterling held steady at $US1.3662. The US Treasury bond market is closed on Friday for the holiday, but 10-year yields rose 4.7 basis points to 4.34 per cent while the two-year yield jumped 9.3 bps to 3.882 per cent. Gold firmed 0.4 per cent to $US3,339 per ounce, on track for a weekly gain as investors again sought refuge in safe-haven assets due to concerns over the US's fiscal position and tariffs. Brent crude futures fell seven cents to $US68.73 a barrel, while US West Texas Intermediate crude was last seen flat at $US67.02. Stocks have slipped despite record highs for Wall Street overnight as US President Donald Trump's deadline for trade deals looms. The dollar retraced some of Thursday's gains with US markets already shut for the holiday-shortened week as traders considered the impact of the sweeping spending bill that Trump is expected to sign into law later in the day. The pan-European STOXX 600 index fell 0.6 per cent on Friday, driven in part by losses on spirits makers such as Pernod Ricard and Remy Cointreau after China said it would impose duties of up to 34.9 per cent on brandy from the European Union starting July 5. US S&P 500 futures edged down 0.5 per cent following a 0.8 per cent overnight advance for the cash index to a fresh record closing peak. Wall Street is closed on Friday for the Independence Day holiday. Trump said Washington would start sending letters to countries on Friday specifying what tariff rates they would face on exports to the United States, a clear shift from earlier pledges to strike scores of individual deals before a July 9 deadline when tariffs could rise sharply. Investors were "now just waiting for July 9", said Tony Sycamore, an analyst at IG, with the market's lack of optimism for trade deals responsible for some of the equity weakness in export-reliant Asia, particularly Japan and South Korea. At the same time, Thursday's jobs data showed "the US economy is holding together better than most people expected, which suggests to me that markets can easily continue to do better" from here, Sycamore said. Investors cheered the surprisingly robust jobs report on Thursday, sending all three of the main US equity indexes climbing in a shortened session. Following the close, the House narrowly approved Trump's signature, 869-page bill, which would add $US3.4 trillion ($A5.2 trillion) to the nation's $US36.2 trillion debt, according to the non-partisan Congressional Budget Office. Trump said he expected "a couple" more trade agreements after announcing a deal with Vietnam on Wednesday to add to framework agreements with China and Britain as the only successes so far. US Treasury Secretary Scott Bessent said earlier this week that a deal with India was close. However, agreements with Japan and South Korea, once touted by the White House as likely to be among the earliest to be announced, appear to have broken down. The US dollar rallied overnight, taking it up as much as 0.7 per cent versus a basket of major peers after the robust payrolls data saw traders take any expectations for a Federal Reserve interest rate cut in July off the table. It ended Thursday with a 0.4 per cent rise. On Friday, the US currency gave back a little of those gains, slumping 0.4 per cent to 144.31 yen and sliding 0.2 per cent to 0.7936 Swiss franc. The euro added 0.2 per cent to $US1.1773, while sterling held steady at $US1.3662. The US Treasury bond market is closed on Friday for the holiday, but 10-year yields rose 4.7 basis points to 4.34 per cent while the two-year yield jumped 9.3 bps to 3.882 per cent. Gold firmed 0.4 per cent to $US3,339 per ounce, on track for a weekly gain as investors again sought refuge in safe-haven assets due to concerns over the US's fiscal position and tariffs. Brent crude futures fell seven cents to $US68.73 a barrel, while US West Texas Intermediate crude was last seen flat at $US67.02. Stocks have slipped despite record highs for Wall Street overnight as US President Donald Trump's deadline for trade deals looms. The dollar retraced some of Thursday's gains with US markets already shut for the holiday-shortened week as traders considered the impact of the sweeping spending bill that Trump is expected to sign into law later in the day. The pan-European STOXX 600 index fell 0.6 per cent on Friday, driven in part by losses on spirits makers such as Pernod Ricard and Remy Cointreau after China said it would impose duties of up to 34.9 per cent on brandy from the European Union starting July 5. US S&P 500 futures edged down 0.5 per cent following a 0.8 per cent overnight advance for the cash index to a fresh record closing peak. Wall Street is closed on Friday for the Independence Day holiday. Trump said Washington would start sending letters to countries on Friday specifying what tariff rates they would face on exports to the United States, a clear shift from earlier pledges to strike scores of individual deals before a July 9 deadline when tariffs could rise sharply. Investors were "now just waiting for July 9", said Tony Sycamore, an analyst at IG, with the market's lack of optimism for trade deals responsible for some of the equity weakness in export-reliant Asia, particularly Japan and South Korea. At the same time, Thursday's jobs data showed "the US economy is holding together better than most people expected, which suggests to me that markets can easily continue to do better" from here, Sycamore said. Investors cheered the surprisingly robust jobs report on Thursday, sending all three of the main US equity indexes climbing in a shortened session. Following the close, the House narrowly approved Trump's signature, 869-page bill, which would add $US3.4 trillion ($A5.2 trillion) to the nation's $US36.2 trillion debt, according to the non-partisan Congressional Budget Office. Trump said he expected "a couple" more trade agreements after announcing a deal with Vietnam on Wednesday to add to framework agreements with China and Britain as the only successes so far. US Treasury Secretary Scott Bessent said earlier this week that a deal with India was close. However, agreements with Japan and South Korea, once touted by the White House as likely to be among the earliest to be announced, appear to have broken down. The US dollar rallied overnight, taking it up as much as 0.7 per cent versus a basket of major peers after the robust payrolls data saw traders take any expectations for a Federal Reserve interest rate cut in July off the table. It ended Thursday with a 0.4 per cent rise. On Friday, the US currency gave back a little of those gains, slumping 0.4 per cent to 144.31 yen and sliding 0.2 per cent to 0.7936 Swiss franc. The euro added 0.2 per cent to $US1.1773, while sterling held steady at $US1.3662. The US Treasury bond market is closed on Friday for the holiday, but 10-year yields rose 4.7 basis points to 4.34 per cent while the two-year yield jumped 9.3 bps to 3.882 per cent. Gold firmed 0.4 per cent to $US3,339 per ounce, on track for a weekly gain as investors again sought refuge in safe-haven assets due to concerns over the US's fiscal position and tariffs. Brent crude futures fell seven cents to $US68.73 a barrel, while US West Texas Intermediate crude was last seen flat at $US67.02.

Sydney Morning Herald

7 hours ago

Sydney Morning Herald

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

New York: Celebrated historian Sir Niall Ferguson calls it 'Ferguson's Law' – a rule of thumb under which 'any great power that spends more on debt servicing than on defence risks ceasing to be a great power'. In a February paper for the Hoover Institution at Stanford University, where he is a senior fellow, Ferguson explained that in 2024, for the first time in nearly a century, the United States spent a bigger share of gross domestic product paying interest on its debt (3.1 per cent) than it did on defence (3 per cent). And on present assumptions, the Congressional Budget Office (CBO) projects net interest payments will account for nearly double the defence budget by 2050. 'This unpleasant fiscal arithmetic poses a clear and present danger not merely to the US economy, but also to the position of the United States as the world's dominant military power,' Ferguson says. 'It must be a matter of urgent concern for American policymakers to restore an appropriate relationship between spending on debt service and spending on national security.' Enter Donald Trump and his One Big Beautiful Bill. A grab bag of Trump's policy priorities, the bill bounced its way through Congress this week to arrive at the president's desk for signing on Friday, Independence Day (Saturday AEST), in a highly symbolic display of his sway over the Republican Party and indeed the country. Loading It caps an extraordinary two weeks in which Trump bombed Iran, dominated a NATO summit, shepherded a ceasefire between Israel and Iran, won a significant and highly consequential victory in the US Supreme Court, opened a detention centre nicknamed 'Alligator Alcatraz' and, now, will ink his signature piece of legislation. The One Big Beautiful Bill Act (OBBB), which is its official title, has at its centre the permanent extension of Trump's 2017 tax cuts for individuals and businesses, which were due to expire at the end of this year. According to the nonpartisan CBO, those tax cuts contribute the lion's share to a total increase in the budget deficit of $US3.25 trillion ($4.95 trillion) over the next 10 years – $US3.94 trillion including interest. The libertarian Cato Institute think tank, which advocates limited government, said that under what it called 'realistic assumptions' about economic growth, extensions of tax giveaways or delays to spending reform, the bill could actually add more than $US6 trillion to the national debt. Big, beautiful, bonkers? 'The debt burdens in this bill are unwelcome and dangerous,' says Judge Block, a senior fellow at the New York-based Manhattan Institute, a conservative think tank. 'It's one of the more expensive pieces of legislation in modern memory.' The Trump administration, and many Republicans, see it differently. In their view, the bill actually reduces debt as it contains savings measures while mostly rolling over existing tax policy. Otherwise, Americans would be hit with an enormous tax increase. The CBO, on the other hand, bases its calculations off existing law, under which taxes revert to their pre-2017 levels. Block said Republicans could largely justify the 2017 Trump tax cuts because they were paired with significant simplifications of the tax code. That is not the case this time, he said, though there were positive aspects to the OBBB, such as immediate tax write-offs for research and development. 'To a large extent, most of the debt here is coming from giveaways such as the overtime credit, the tax on tips deduction,' he said. 'Those can't really be justified as tax simplification or a means toward economic growth, which makes their deficit-increasing aspect all the more worrying.' Introducing tax deductions for tips and overtime was a major Trump election promise, one he advertised with much fanfare in cities such as Las Vegas. There's a major catch, though: the policy expires at the end of 2028, when Trump leaves office. As Block points out, there are fairly substantial spending cuts in the bill, which Republicans have not always dared reach for in the past. The biggest is a record $US1 trillion cut to Medicaid, which provides health coverage for low-income adults and families. The CBO estimates this will lead to 11.8 million more people living without health insurance by 2034. The White House maintains there are no 'cuts' to Medicaid in the OBBB. Rather, it says the savings come from removing illegal aliens from the program, enforcing work requirements and protecting Medicaid 'for the truly vulnerable'. Medicaid was a focus of a record-breaking speech by the Democrats' leader in the House of Representatives, Hakeem Jeffries, who began before dawn on Thursday local time and spoke for nearly nine hours. Languishing without the numbers in either chamber of Congress, and with Trump stamping his authority on every aspect of American life, the listless Democratic Party was hoping to send a signal to angry voters, even if it was only able to delay the inevitable, with the OBBB passing quickly after Jeffries finally sat down. '[Seventeen] million people just lost healthcare,' posted the Democratic governor of California, Gavin Newsom, within minutes of the bill's passage. '[Eighteen] million kids just lost school meals. Three million Americans just lost food assistance. And $US3.5 trillion was added to the deficit. All for a tax cut for Trump's billionaire donors.' Newsom called it 'the ultimate betrayal'. In New York, young hedge fund manager Spencer Hakimian was also aghast. The 26-year-old, who has built an online following of 150,000 criticising Trump over tariffs, said history had shown debt accumulation is the ruin of empires. 'You can't keep adding debt with no limit. Both parties are wrong about this, it's a complete fallacy,' he said. And it was facetious for the administration to argue that the tax cuts didn't really contribute to debt, Hakimian said. The bill lifts the debt ceiling by another $US5 trillion. 'Why would they be raising the debt limit if they weren't adding to the debt?' The feeling on Wall Street is mixed, Hakimian says, but most people are agnostic. Markets are already at all-time highs, with the US economy defying expectations, unemployment staying low and Trump's tariff threats largely petering out. That matches the assessment of The Economist 's British editor-in-chief Zanny Minton Beddoes, who said the mood among New York financiers at the Aspen Ideas Festival was insouciant, and ambivalent about the debt. 'Call me a European grinch, but I felt I had arrived on planet Pangloss,' she told subscribers in a note after the 'big, beautiful, bonkers' bill passed. 'I worry that Trumponomics 2.0 is eroding the foundations of America's economy in more fundamental ways than many people are willing to admit.' Ticking time bomb Steven Hamilton, an Australian assistant professor of economics at George Washington University, says the debate over how to measure the One Big Beautiful Bill's impact on debt is moot. The point, he says, is that it presumes current policy can go on forever, and 'letting current policy go on forever is nuts'. 'Within 10 years, US debt to GDP will be approaching 130 per cent, which is well above any time in US history, well above World War II and beyond the level anyone really thinks is sustainable,' Hamilton says. 'That's with the debt we have, and what we're planning to do is increase debt by another 25 per cent over the next 10 years. What we actually needed from the bill is a serious fiscal consolidation effort.' Likewise, Block says the bill's savings measures effectively concede Congress is not going to approve any such consolidation, and will simply leave the 'dire' state of US debt in place. Loading Many analysts believe a sovereign debt crisis is a matter of when, not if. About a month ago, JPMorgan Chase chief executive Jamie Dimon said a crack in the bond market was 'going to happen'. Hamilton believes it is coming sooner rather than later. 'At some point in the next 10 years, there is going to be a reckoning where the music stops and the markets say, 'well, we're not going to fund this any more',' he says. 'You cannot keep going along this pathway.' A devaluing of US debt would have dire consequences for the global financial market and for Australia that would eclipse, by far, the 2008 Global Financial Crisis. Even if such a collapse doesn't happen on its own, says Hamilton, the US debt burden leaves it in a precarious position to deal with a crisis, such as a future pandemic, war with China, or some sort of crisis arising from the advent of artificial intelligence technology. 'There are all sorts of things we don't know,' he says. 'We're exposing ourselves to enormous risk.' Much of that risk depends on what happens to interest rates in coming years. Low rates between the GFC and the COVID-19 pandemic made US debt more affordable. That era is now over. Loading Trump has been badgering Federal Reserve chair Jerome Powell for months to lower interest rates, saying it is costing the US government hundreds of billions of dollars a year in interest payments on its debt. But it is the long-term trajectory that matters, and Block says the consequences could be disastrous. 'If those interest rates continue to go up, that could be by far the most drastic threat to the American economy and America writ large,' he says. More than the threat posed by Russia or China? 'I don't think that's an exaggeration.'

ASX closes at fresh record high

Hashtags

Try Our AI Features

Comments

Related Articles

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

Stocks dip, dollar slumps as Trump deal deadline looms

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

ASX closes at fresh record high

Hashtags

Try Our AI Features

Comments

Related Articles

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

Stocks dip, dollar slumps as Trump deal deadline looms

‘Going to be a reckoning': The ticking time bomb in Trump's big beautiful bill

Get Started Now: Download the App