Latest news with #USdebt
Free Malaysia Today
a day ago
- Business
- Free Malaysia Today
US debt market crisis looming, JPMorgan chief warns
JPMorgan CEO Jamie Dimon expressed concern over a potential US debt market crisis caused by Trump administration economic policies. (EPA Images pic) SAN FRANCISCO : JPMorgan Chase chief executive Jamie Dimon voiced concern Sunday at the risk of a looming US debt market crisis sparked by the Trump administration's economic policies. 'It's a big deal. It is a real problem,' Dimon told Maria Bartiromo on FOX Business Network's 'Mornings with Maria' show, according to an excerpt of the interview that will air in full Monday. 'The bond market is going to have a tough time. I don't know if it's six months or six years,' he said. Dimon cautioned that once investors become aware of the impact of rising debt levels, interest rates would skyrocket and markets would be disrupted – a dangerous scenario for the world's biggest economy. 'People vote with their feet,' he stressed. Investors 'are going to be looking at the country, the rule of law, the inflation rates, the central bank policies,' he said, warning that 'if people decide that the US dollar isn't the place to be,' financing US debt will become more expensive. Historically, the US has been able to rely on market appetite for low-interest US Treasury bonds to support its economy. Yields briefly climbed last week, amid concerns about President Donald Trump's divisive budget plan. The plan would among other things extend the gigantic tax breaks introduced during Trump's first term, spurring fears of a ballooning federal deficit. In mid-May, for the first time ever, the US lost its triple-A credit rating from Moody's. When it announced the downgrade to Aa1, the ratings agency warned that it expects US federal deficits to widen dramatically over the next decade. The White House's back-and-forth announcements of towering tariffs slapped on countries around the world are also creating considerable uncertainty and thus market volatility. Dimon already warned in April of 'considerable turbulence' facing the American economy, pointing to the impact of tariffs, trade wars, inflation and budget deficits. US treasury secretary Scott Bessent on Sunday downplayed Dimon's predictions of a debt market crisis. 'I've known Jamie a long time, and for his entire career he's made predictions like this,' Bessent said during an interview on CBS. 'Fortunately, not all of them have come true.' Bessent acknowledged that he 'was concerned about the level of debt.' But he said 'the deficit this year is going to be lower than the deficit last year, and in two years, it will be lower again.' 'We are going to bring the deficit down slowly,' Bessent added, insisting that addressing the deficit was a 'long process.' 'The goal is to bring it down over the next four years, (and to) leave the country in great shape in 2028.'
Reuters
3 days ago
- Business
- Reuters
High yields bring US fiscal 'precipice' even closer
ORLANDO, Florida, May 29 (Reuters) - Few would disagree that U.S. public finances are deteriorating, but debt Cassandras have been warning of a fiscal day of reckoning for 40 years and it has yet to arrive, so why should this time be any different? The non-partisan Congressional Budget Office's baseline forecast sees federal debt held by the public rising to 117% of GDP over the next decade from 98% last year, and net interest payments rising to 4% of GDP, a sixth of all federal spending. While these eye-watering figures are concerning, it still seems difficult to fathom the United States experiencing a genuine debt crisis where investors turn their backs on Treasuries and the dollar, the two cornerstones of the global financial system. Both should enjoy strong demand – at least for the foreseeable future – even if their prices may need to fall to attract buyers. And in times of extreme crisis, like 2008 and 2020, the Fed can always buy huge quantities of U.S. bonds to stabilize the market. But that doesn't mean investors should ignore the swelling tide of fiscal gloom. We may not see a full-blown debt crisis, but there's a sense that "the fiscal" matters for markets more now than it has for decades. To better understand the risk at hand, it's useful to explore the assumptions baked into the current U.S. debt and deficit projections. The CBO's comprehensive fiscal projections are a benchmark for many policymakers and investors. But amid the fog of uncertainty created by U.S. President Donald Trump's trade war, the baseline economic assumptions underlying this outlook may be too optimistic. The CBO assumes that the United States will experience continuous, uninterrupted economic growth over the next decade. While it's true that since 1990 the U.S. economy has twice gone on streaks of more than a decade without experiencing a recession, conditions today - not the least of which is the country's bloated public debt burden - suggest that a repeat is highly unlikely. And in the event of a downturn, U.S. public finances would almost certainly suffer the double whammy of shrinking tax receipts and a surge in benefit payments, pushing the country closer to a fiscal cliff. Of course, an economic downturn would probably also prompt the Fed to lower interest rates, which would likely cause bond yields to fall and offer some relief on debt-servicing costs. But investor angst over the debt may keep market-based borrowing costs higher than they would otherwise be, something that is also not baked into the CBO's central projections. And if government borrowing costs over the next decade are higher than currently projected, the U.S. fiscal picture is even more troublesome than thought. Yield curve assumptions play a major – and often underappreciated – role in U.S. debt sustainability projections. The current CBO projections are based on the expectation that the yield curve will "normalize" in the coming year. They assume that the three-month Treasury yield will fall to 3.2% and the 10-year yield will settle at 3.9%. But what if the yield curve stays near current levels over the next decade, with a three-month rate of 4.40% and a 10-year yield of 4.50%? Chris Marsh at Exante Data crunches the numbers and finds that, in this scenario, federal debt held by the public could rise to 125% of GDP by 2034 and interest payments as a share of revenue would approach 30%. Interest payments as a share of revenues are already about to exceed their late-1980s peak and may end up at the highest level since at least the 1950s. Adding to this concern, Saul Eslake and John Llewellyn at Independent Economics note that if the yield curve does not normalize, the United States could get in the dangerous position where nominal GDP growth remains persistently below the 10-year Treasury yield, meaning debt dynamics would deteriorate because interest payments would outstrip growth. Given that the Trump administration's current budget bill is expected to add nearly $4 trillion to the federal debt over the next decade, the risk of this is especially pertinent today. One consequence of higher-for-longer U.S. interest rates then could be a much-heavier-for-much-longer debt burden. (The opinions expressed here are those of the author, a columnist for Reuters)
Zawya
4 days ago
- Business
- Zawya
High yields bring US fiscal 'precipice' even closer: McGeever
(The opinions expressed here are those of the author, a columnist for Reuters.) ORLANDO, Florida - Few would disagree that U.S. public finances are deteriorating, but debt Cassandras have been warning of a fiscal day of reckoning for 40 years and it has yet to arrive, so why should this time be any different? The non-partisan Congressional Budget Office's baseline forecast sees federal debt held by the public rising to 117% of GDP over the next decade from 98% last year, and net interest payments rising to 4% of GDP, a sixth of all federal spending. While these eye-watering figures are concerning, it still seems difficult to fathom the United States experiencing a genuine debt crisis where investors turn their backs on Treasuries and the dollar, the two cornerstones of the global financial system. Both should enjoy strong demand – at least for the foreseeable future – even if their prices may need to fall to attract buyers. And in times of extreme crisis, like 2008 and 2020, the Fed can always buy huge quantities of U.S. bonds to stabilize the market. But that doesn't mean investors should ignore the swelling tide of fiscal gloom. We may not see a full-blown debt crisis, but there's a sense that "the fiscal" matters for markets more now than it has for decades. ECONOMIC ASSUMPTIONS To better understand the risk at hand, it's useful to explore the assumptions baked into the current U.S. debt and deficit projections. The CBO's comprehensive fiscal projections are a benchmark for many policymakers and investors. But amid the fog of uncertainty created by U.S. President Donald Trump's trade war, the baseline economic assumptions underlying this outlook may be too optimistic. The CBO assumes that the United States will experience continuous, uninterrupted economic growth over the next decade. While it's true that since 1990 the U.S. economy has twice gone on streaks of more than a decade without experiencing a recession, conditions today - not the least of which is the country's bloated public debt burden - suggest that a repeat is highly unlikely. And in the event of a downturn, U.S. public finances would almost certainly suffer the double whammy of shrinking tax receipts and a surge in benefit payments, pushing the country closer to a fiscal cliff. Of course, an economic downturn would probably also prompt the Fed to lower interest rates, which would likely cause bond yields to fall and offer some relief on debt-servicing costs. But investor angst over the debt may keep market-based borrowing costs higher than they would otherwise be, something that is also not baked into the CBO's central projections. And if government borrowing costs over the next decade are higher than currently projected, the U.S. fiscal picture is even more troublesome than thought. YIELD CURVE ASSUMPTIONS Yield curve assumptions play a major – and often underappreciated – role in U.S. debt sustainability projections. The current CBO projections are based on the expectation that the yield curve will "normalize" in the coming year. They assume that the three-month Treasury yield will fall to 3.2% and the 10-year yield will settle at 3.9%. But what if the yield curve stays near current levels over the next decade, with a three-month rate of 4.40% and a 10-year yield of 4.50%? Chris Marsh at Exante Data crunches the numbers and finds that, in this scenario, federal debt held by the public could rise to 125% of GDP by 2034 and interest payments as a share of revenue would approach 30%. Interest payments as a share of revenues are already about to exceed their late-1980s peak and may end up at the highest level since at least the 1950s. Adding to this concern, Saul Eslake and John Llewellyn at Independent Economics note that if the yield curve does not normalize, the United States could get in the dangerous position where nominal GDP growth remains persistently below the 10-year Treasury yield, meaning debt dynamics would deteriorate because interest payments would outstrip growth. Given that the Trump administration's current budget bill is expected to add nearly $4 trillion to the federal debt over the next decade, the risk of this is especially pertinent today. One consequence of higher-for-longer U.S. interest rates then could be a much-heavier-for-much-longer debt burden. (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Mark Porter)
Bloomberg
6 days ago
- Business
- Bloomberg
Dollar May Face ‘Major' Drop in 2026, Standard Chartered Says
The risk of a 'major' downturn in the dollar will increase next year if President Donald Trump's policies add to the US debt burden but fail to boost the economy, according to Standard Chartered. US government debt and the amount owed to investors outside the country have increased simultaneously in recent years, the bank said in a research note. That puts the dollar and Treasuries at risk from any loss of confidence among foreign investors as they get a better view of the longer-term impact of increased borrowing.
Yahoo
25-05-2025
- Business
- Yahoo
Moody's Just Downgraded the United States' Pristine Credit Rating -- Here's What History Says Happens Next for Stocks
Moody's became the last of the three major credit-rating agencies to downgrade the U.S. from the highest possible credit rating. Unrelenting federal deficits, rising interest rates, and ongoing demographic shifts are all concerns for the U.S. economy. Wall Street's benchmark index (the S&P 500) made a strong but surprising move 12 months after the previous two debt downgrades from Standard & Poor's and Fitch Ratings. 10 stocks we like better than S&P 500 Index › There's never a dull moment on Wall Street. Earlier this year, the bulls could do no wrong, with the benchmark S&P 500 (SNPINDEX: ^GSPC) climbing to an all-time record high. Not long thereafter, a historic bout of volatility arrived. In April, the steady-footed S&P 500 endured its fifth-worst two-day percentage decline of the last 75 years. But true to form, less than a week after this mini-crash, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), the S&P 500, and the growth-focused Nasdaq Composite (NASDAQINDEX: ^IXIC) all registered their largest single-day point gains since their respective inceptions. Short-term movements in the Dow Jones, S&P 500, and Nasdaq Composite are aptly described as predictably unpredictable. It's simply a matter of which shoe drops next. On Friday, May 16, after the markets had closed for the week, Wall Street and investors got their answer in the form of a Moody's (NYSE: MCO) downgrade of the United States' credit rating. While there have been countless takes on what this credit-rating downgrade means for the U.S., history is relevant, too -- and it points to a very clear directional move for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. To be transparent, Moody's debt downgrade isn't the first the U.S. has endured. In fact, Moody's was the last among the major credit-rating agencies to have kept America at its highest possible rating (AAA). In August 2011, Standard & Poor's (S&P), a division of the more familiar S&P Global, lowered its credit rating for the U.S. one level, from AAA to AA+. Nearly 12 years later to the day, in 2023, Fitch Ratings downgraded the U.S. credit rating by a corresponding AAA to AA+. Moody's became the last on May 16 with its credit-rating reduction from AAA to AA1, which is also one level below the highest possible rating. Moody's downgrade brings to the forefront a number of headwinds working against the U.S. economy. For starters, the federal government has been operating in a continual state of deficit, regardless of whether the U.S. economy is rapidly expanding or growing at a snail's pace. With the exception of 1998 through 2001, the federal government has spent more than it's brought in every year since 1970. Since the financial crisis in 2008-2009, federal deficits have really ballooned and shown no signs of slowing. This simply isn't sustainable. Secondly, the prospect of rising interest rates makes America's perpetually growing national debt all the more concerning. The Federal Reserve's monetary policy affects more than what you pay in interest on your credit card. The central bank's efforts to curb historically high inflation in 2022 and 2023 also made servicing U.S. national debt costlier. The third and final factor weighing on America's financial health is a series of ongoing demographic shifts. For more than a quarter of a century, the number of migrants entering the country has been declining -- and both legal and undocumented migrants have positively impacted America's social programs. Meanwhile, the U.S. fertility rate hit an all-time low in 2023. Fewer workers entering the labor force at a time when baby boomers are retiring is putting added pressure on revered social programs like Social Security and Medicare and increasing government outlays. But -- and this is a pretty big but -- Moody's rating is underpinned by an assumption: The U.S.' institutions and governance will not materially weaken, even if they are tested at times. In particular, we assume that the long-standing checks and balances between the three branches of government and respect for the rule of law will remain broadly unchanged. In addition. we assess that the U.S. has capacity to adjust its fiscal trajectory, even as policy decision-making evolves from one administration to the next. In other words, even though the U.S. no longer boasts the highest possible credit rating, Moody's still believes it's a financially strong entity. So what happens to stocks when a major credit-rating agency sours on the U.S. economy? Admittedly, we're dealing with a somewhat limited data set. Since this marks only the third downgrade from the previously pristine rating, no correlations, in terms of gains or losses in equities, can be guaranteed. Nevertheless, the S&P 500 made a very decisive directional move following each of the previous two credit-rating downgrades. Based on data summarized by Carson Group's global macro strategist, Sonu Varghese, and reposted on social media platform X (formerly Twitter) by its chief market strategist, Ryan Detrick, the benchmark S&P 500 fell 2.6% one month after its Aug. 5, 2011 downgrade as overall market volatility increased. Likewise, the S&P 500 dipped 1.2% a month after Fitch's downgrade on Aug. 1, 2023, also largely due to higher volatility and prevailing economic uncertainty. But it's a completely different story if investors widen their focus. As you'll note in Detrick's post detailing Varghese's summary, Wall Street's leading stock index surged by 18.8% 12 months after the S&P downgrade in August 2011 and rocketed 20.8% higher one year after the credit downgrade from Fitch. On average, the S&P 500 has effectively doubled its average annual return since 1950 in the 12 months following a debt downgrade from a major credit-rating agency. To reiterate, this is a very limited set of data, and there isn't a predictive tool or metric on the planet that can guarantee what comes next for stocks. If there were, every investor would be using it. Yet what Varghese's summarization of events demonstrates is the nonlinearity of economic and stock market cycles. Worries about rising national debt levels are nothing new -- and they aren't going away anytime soon. Despite these concerns, the U.S. economy has continued to grow. Even though headwinds are always waiting for the U.S. economy, history conclusively shows that recessions are short-lived. Since World War II ended nearly eight decades ago, the average U.S. recession has lasted roughly 10 months. On the other hand, the typical period of economic expansion has endured for approximately five years. Investors wagering on U.S. economic growth have consistently had the odds in their favor, as well. Calculations from the researchers at Bespoke Investment Group show that the average S&P 500 bear market has lasted just 286 calendar days (roughly 9.5 months) since the start of the Great Depression in September 1929. Conversely, the typical bull market has stuck around for 1,011 calendar days, or 3.5 times longer, over the same stretch. Worries may persist for a few weeks about Moody's U.S. credit rating downgrade, but the historical indicators of the U.S. economy, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, continue to point higher. 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Moody's Just Downgraded the United States' Pristine Credit Rating -- Here's What History Says Happens Next for Stocks was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
