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The United States and its growing debt: Is its financial hegemony at risk?

The economic and political challenges facing the country amid its mounting debt.

By GBPublished 9 months ago 3 min read

The United States faces a growing debt that exceeds 100% of its Gross Domestic Product (GDP). Despite this, spending on health and weapons force the country to continue borrowing. Democrats and Republicans were negotiating to raise the debt ceiling yet again, raising the question of whether the United States is trapped in a debt spiral. Although the country is the heart of the global financial system thanks to the dominance of the dollar, there is a limit to issuing debt without consequences.

America's debt has been on the rise since the end of the Bush presidency in 2008, due to reasons such as military spending in Iraq and Afghanistan, the financial crisis, tax cuts, and health and social security programs. The debt ceiling was set at $31.4 trillion a few years ago, but this limit has also been exceeded. The country constantly runs deficits and needs to borrow money from the markets to fill that gap in the national budget, which also continues to grow.

The United States is no different than the rest of the world's economies in this respect. The aging of the population places constant pressure on public budgets, since one in six people in the world is expected to be older than 65 years by the year 2050. In addition, economies face expenses related to climate change. and global rearmament due to rising geopolitical tensions. In 2022, global military spending reached a new record of $2.2 trillion.

Despite the debt challenges, the United States has a strategic advantage due to its dominance of the dollar. The world demands dollars and the most common way to obtain them is by buying debt from the country that prints them. US Treasury bonds are considered the safest on the market, which has maintained investor confidence. Although there are rivalries with China and Russia, the dollar is not expected to lose its hegemony in the near future.

However, there is no specific number that marks the debt limit. Japan, for example, has a debt that represents 263% of its GDP. One of the dangers of increasing debt so much is falling into a spiral in which budget items such as defense or health must be cut to pay the interest on the overdue debt. This could reduce the country's growth and lead investors to lose confidence, which would increase the interest on the debt again, creating a negative spiral.

Despite these risks, the United States benefits from borrowing in its own currency and from prospects for debt stability based on interest rate projections. If interest rates fall and the US economy continues to grow, economists do not see growing debt as an urgent threat.

However, recent political disagreements have shown how the United States can be threatened by its own internal polarization.

Confidence in the United States is essential to maintain its global financial and economic hegemony, especially in the face of China's growth and the economic and technological paradigm shift. If investors lose confidence that the country will be able to meet its obligations due to a lack of political agreement, the central position of the United States in the financial system and confidence in the dollar and its bonds are put at risk.

In short, the United States faces a steady growth in debt, but its status as a global financial power gives it strategic advantages. However, there are risks associated with increasing debt too much, such as falling into a negative spiral and loss of investor confidence. It is crucial that the country's politicians agree to avoid dangerous situations that put their hegemony and position in the global financial system at risk. If you liked this roundup, don't forget to "Like" it!


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