In the face of positive reports on retail spending and the unemployment rate in the United States, the country is still grappling with several significant challenges that have worsened over time. With a staggering $34 trillion in public debt and consumer credit card debt reaching a high of $1.13 trillion, the sustainability of fiscal policies and their long-term economic impact are being called into question.
Previously, concerns about public debt were mainly discussed by conservatives and libertarians. However, recent statements from prominent figures in the banking industry highlight the seriousness of the situation. JPMorgan Chase CEO Jamie Dimon warns of a potential global market “rebellion,” while Bank of America CEO Brian Moynihan calls for decisive action. Nassim Taleb, author of “The Black Swan,” predicts a “death spiral,” and former House Speaker Paul Ryan describes the debt crisis as the most predictable crisis ever. These voices underscore the urgent need to reevaluate the United States’ fiscal trajectory.
The growing anxiety among the public regarding government debt is evident, with 57% of Americans surveyed by the Pew Research Center advocating for its reduction. This shift in societal priorities towards fiscal responsibility is significant, as it has real-world implications for housing affordability and the broader economic landscape. The precarious state of the housing market, exacerbated by rising interest rates, exemplifies the connection between fiscal policy and individual economic prospects. As public debt increases, so do interest rates.
The global standing of the U.S. dollar, which serves as a “convenience yield,” plays a crucial role in managing the country’s substantial debt without immediate negative consequences. However, a recent working paper from the National Bureau of Economic Research suggests that the loss of the dollar’s status could amplify the debt burden by up to 30%. This finding emphasizes the need to critically evaluate the nation’s fiscal direction.
The challenges faced by the nation, as well as many other developed countries, mirror the struggles of many consumers. Americans have increasingly relied on credit cards to cover regular expenses without paying down the balance. According to a report from the New York Federal Reserve, total credit card debt reached a record high of $1.13 trillion, marking the ninth consecutive annual increase. The report also indicates a rise in borrowers struggling with credit card, student, and auto loan payments, particularly among younger and lower-income households.
During uncertain times, diversification is an essential strategy for retail investors. However, the way in which diversification is approached matters. While investing in the S&P 500 is beneficial, relying solely on it can be risky if it experiences a significant downturn. In addition to traditional investments, exposure to cryptocurrencies is becoming increasingly important for long-term value creation. While Bitcoin and Ethereum often receive the most attention, the hash rate, which reflects blockchain activity, is equally if not more crucial for long-term growth.
The upcoming year poses significant macroeconomic risks for both the nation and consumers. While some economic reports may be positive, it is important to assess whether the data reflects temporary or permanent shocks. Policymakers face the challenge of crafting fiscal policies that foster sustainable growth and productivity, avoiding situations where short-term expediencies lead to long-term economic liabilities. Currently, the country is trapped in a cycle of debt, with interest rates exceeding monthly income.
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Note: This article is for general information purposes only and should not be considered legal or investment advice. The views expressed are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.