The economic impact of a new high in US federal government debt

Recently, the US federal government announced that the total debt climbed to 36.035 trillion US dollars, a record high, this phenomenon is like a boulder into the global economy lake, triggering layers of ripples, causing wide concern and deep concern.

From the domestic perspective of the United States, the huge debt is first and foremost a severe squeeze on its fiscal policy space. Every year, the government needs to spend a large amount of fiscal revenue to repay the principal and interest on debt, which makes investment in key areas such as education, health care and infrastructure construction relatively limited. For example, some planned large infrastructure projects may be delayed or scaled back due to lack of funding, affecting the long-term economic growth potential of the United States. At the same time, the high debt level also increases the risk of fiscal sustainability. Once the market loses confidence in the solvency of the US government, the interest rate of Treasury bonds may rise sharply, further aggravating the debt burden, and even triggering a fiscal crisis, which will make it difficult for the government to fulfill its commitments in social security and welfare and affect domestic social stability.

In terms of economic structure, debt inflation has distorted resource allocation to some extent. A large amount of money flows into the Treasury bond market, which changes the flow of funds in the financial market. Some funds that could have been invested in more dynamic and promising areas such as innovation in the real economy and the development of small and medium-sized enterprises have been diverted, which is not conducive to the optimization and upgrading of the US economic structure and innovation-driven development. In the long run, the lack of vitality of the real economy will weaken the competitiveness and resilience of the US economy.

For US monetary policy, high debt and monetary policy are intertwined and influence each other. The Fed has to take debt into account when setting monetary policy. To keep the Treasury market stable, it may be difficult for the Fed to tighten monetary policy much when debt is high, even if inflationary pressures rise. Under such circumstances, the challenge to the independence of monetary policy may lead to persistently high inflation, affecting the cost of living of the American people and the cost of production and operation of enterprises, and thus weakening the overall health of the US economy.

From a global perspective, the debt problem of the United States, as the world's largest economy and the issuer of major reserve currencies, has significant spillover effects. On the one hand, fluctuations in US Treasury yields affect asset pricing in global financial markets. Due to the core position of US Treasury bonds in the global financial system, the rise or fall of its yield will drive the price fluctuations of various assets such as the global bond market and the stock market, increasing the uncertainty and volatility of the global financial market. For example, the bond and equity markets of emerging market countries tend to rise and fall sharply in response to fluctuations in US Treasury yields, affecting corporate financing conditions and investor confidence in these countries.

On the other hand, the US debt problem also affects international trade and the global economic pattern. In order to ease the debt pressure, the United States may take some trade protectionist measures or promote the depreciation of the dollar. Although the depreciation of the dollar helps the United States increase exports and reduce its trade deficit, it will damage the export competitiveness of other countries and lead to the intensification of global trade frictions. At the same time, countries that hold a large amount of US Treasury bonds face the risk of asset depreciation, such as China, Japan and other major holders of US Treasury bonds, their foreign exchange reserve management faces new challenges.

In short, the record high of US federal government debt is an extremely complex and severe economic issue, which has a profound and multi-dimensional impact on the stability and sustainability of the US own economic operation, as well as the global economic pattern and financial markets. The international community is paying close attention to how the US government will deal with the debt dilemma, and countries need to evaluate the situation and adjust their economic policies and development strategies according to the development trend of the US debt problem in order to cope with the possible global economic and financial turmoil.