United States Of America has a national debt disaster that keeps growing. At $36 trillion, it’s the highest in history, with no signs of slowing down.
In 16 years, the debt-to-GDP ratio has doubled, now sitting at 121%. Compare that to World War II, when it maxed out at 119%. Back then, the country was fighting global tyranny. Now? The debt is ballooning because of poor fiscal planning and relentless spending.
Since 2008, the federal debt has skyrocketed by $26.6 trillion, nearly tripling, while the economy only grew by $14.6 trillion. That’s a $12 trillion shortfall. Economists predict even worse to come.
The Congressional Budget Office (CBO) says the debt-to-GDP ratio could hit 131% by 2034, assuming the economy avoids a recession.
Every single day, the government spends over $1 billion just on interest payments. This year, the cost is expected to top $1 trillion, more than what the nation spends on defense.
Right now, the debt-to-GDP ratio is at 125%. Experts think it could hit 200% in a few years. That would mean the debt is twice the size of the entire economy. When that happens, the government will spend more on interest payments than on things people actually need, like infrastructure and education.
On average, every American owes $108,000. That’s money being sucked away from investments that could build a better future. Instead of funding new roads, schools, or tech, the cash is going to creditors.
President Donald Trump is walking into his second term with an economic time bomb. His administration is scrambling to control spending. Enter the Department of Government Efficiency, a new initiative led by Elon Musk and Vivek Ramaswamy.
Elon says they can slash billions from the budget. Proposed cuts include slashing public broadcasting and pulling funding from advocacy groups tied to abortion rights.
But here’s the issue: Trump still wants more tax cuts. His new plan includes slashing corporate taxes to 15%. Critics are already sharpening their knives. They say it’ll blow up the deficit even more.
High interest rates are also creating roadblocks. The yield on 10-year Treasury notes, a key benchmark for borrowing, has jumped from 0.6% in 2020 to 4.4% recently. This means the government’s borrowing costs are through the roof. The same applies to everyday Americans.
The administration isn’t out of ideas, though. One controversial plan involves refusing to spend money already approved by Congress. Another proposal targets funding cuts for energy and environmental projects tied to the Inflation Reduction Act. Both ideas could face legal challenges, but desperate times do call for desperate measures.
America’s debt jumped by $16 trillion during COVID-19, a surge unlike anything seen before. Over the past year, the debt has grown by $6.3 billion a day. That’s over $262 million an hour. Let that sink in.
The debt isn’t just a domestic issue. It’s affecting America’s role on the global stage. Investors are starting to worry about the dollar’s stability.
If confidence in the U.S. economy weakens, it definitely will affect global markets, causing chaos everywhere. From equities to crypto, everything will shake. And the global economy itself might tumble.
The Federal Reserve is expected to cut interest rates for the third time this year at its December meeting. However, the bigger question here remains what’s next for 2025. While a 0.25% rate cut is likely in December, doubts are growing about how quickly the Fed will lower rates next year. Recent economic data has shown solid growth and sticky inflation.
In September, the Fed’s projections indicated four rate cuts for 2025, but markets now forecast only two. The next update comes on December 18, and it could reveal a shift in the outlook. Wall Street economists generally agree that the rapid pace of cuts won’t continue.
With the Fed funds rate currently at 4.5%-4.75%, most of the experts agree that it’s restrictive. The debate now centers on how much further easing is necessary while inflation remains sticky.
On the other hand, the digital assets market is watching a not ending bull run as Bitcoin is trying to get over the much anticipated $100k milestone. BTC’s 128% year to date (YTD) surge says it all. The cumulative crypto market cap is now rapidly approaching the $3.5 trillion mark.
Elsewhere, A record-breaking 56.4% of Americans think the stock market will rise over the next 12 months, according to the latest Conference Board Consumer Survey. This figure has doubled in just two years, signaling the highest level of optimism ever recorded.
In November, the gap between those expecting stock prices to climb and those predicting declines hit a historic 35%. This is happening while the S&P 500 approaches a massive milestone: its first annual gain of over 30% since 1997.
During Biden’s first three years, dollar-denominated emerging-market bonds outperformed stocks.
This year, they’re neck and neck: bonds have gained 8.4%, while stocks have delivered 9%. But bonds have managed all this with half the volatility of equities. High-yield sovereign bonds? Up a stunning 15%.
Trump’s trade policies are the wildcard. If he imposes tariffs on Mexican and Chinese imports, stocks will take a hit, while bonds could shine. But if Trump’s tariff strategy is more about negotiating leverage, it could push equities ahead of bonds.
The market is already showing signs of a split. Since early November, the Bloomberg Emerging Market Dollar Debt Index has been climbing, while the MSCI Emerging Market Equity Index has dropped 3.7%.
Chinese stocks, a major part of the equity index, have plunged 8% since Trump’s win, dragging down the entire sector. Meanwhile, bonds have stayed steady, offering a refuge for nervous investors.
Emerging-market stocks started the year on a high. Everyone expected Federal Reserve rate cuts and Chinese economic stimulus. But since October, it’s been a different story. Stocks in this category have dropped nearly 10% as traders brace for Trump’s potential tariffs.
The stakes are high for countries like China, South Korea, India, and Taiwan, which make up 73% of the emerging-market equity index. In simpler terms, people want safe bets, and emerging-market bonds have been delivering just that.
Unlike the equity index, which is heavily exposed to China, the bond gauge is more balanced. China accounts for only 10% of the bond index, compared to its heavy weighting in stocks.
Emerging-market debt has gained steady traction, thanks to solid yields and less exposure to geopolitical drama. High-yield bonds, especially those from riskier sovereigns, are up 15%—a major win for investors who stuck with fixed income.
The strong dollar is creating headaches for emerging-market equities. While it might help Asian exporters compete globally, it’s putting pressure on equity valuations. Investors yanked $1.8 billion out of emerging-market equity funds in the week ending November 27.