Inconvenient Truths About US Debt Explosion

The resurgence of COVID-19 in the United States is paving the way to a debt record, even relative to government debt at the end of World War II. The collateral damage in global recovery will be significant.

The delays and containment failures of the COVID-19 in major advanced economies, particularly the United States, are morphing into a faster-than-expected series of economic challenges, including debt crises. 

Only two quarters ago, US federal debt hovered around $23 trillion; a stunning 106% as percentage of the GDP. Today – after barely two quarters – that debt is close to $27 trillion (Figure 1). Moreover, as US GDP has drastically contracted, the debt-to-GDP ratio is now closer to 133%; higher than that of Italy in 2018, or Greece prior to its debt crisis in 2010. 

But unlike Italy or Greece, US is one of the global anchor economies. Consequently, spillover effects will ensue. Furthermore, both US government debt and the debt-to-GDP ratio will continue to climb. 

Figure 1  US Government Debt and US Coronavirus cases

 

Failures in COVID-19 containment translates to…

In early spring, the epicenter of the COVID-19 moved to Western Europe. Then, it exploded in North America. Today, it is rapidly spreading in emerging and developing economies, while accelerating in the United States, again. 

The spread in poorer economies was widely expected; the resurgence in the US was a concern, but mainly in late fall 2020 or early spring 2021. Now it is a reality. 

The reasons are well known: Despite knowledge about the new coronavirus already on January 3, the Trump administration did not mobilize against it. When the WHO launched its international alert on January 30, that did not result in effective mobilization either. After the WHO finally issued the pandemic alert, the Trump White House began mobilization, but belatedly and ineffectively. 

Due to poor crisis leadership and premature exits, the administration is now struggling with the COVID-19 resurgence, while similar failures and spillovers have turned the Americas into the largest regional COVID-19 epicenter (Figure). 

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Based on Dr Steinbock’s briefing on July 10, 2020

Disclaimer: Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. ...

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