‘American Exceptionalism’ is a term used to describe the strong belief in the US’s economic and market superiority compared to other developed nations. While America’s confidence in its growth is evident, it is crucial to examine the underlying factors contributing to this growth. The US’s unprecedented deficit spending and mounting debts are often overlooked in the narrative of exceptionalism. In this blog post, we delve into the alarming facts and figures surrounding America’s deficit and debt, shedding light on the potential consequences of this fiscal trajectory.
America’s Unprecedented Deficit Spending
Amid the challenges posed by the Covid-19 pandemic, the US embarked on extensive deficit spending to support its citizens. At the peak of the pandemic, America’s budget-deficit surged to over 10 percent of its GDP, three times higher than other developed countries. Looking ahead, the US deficit is projected to average 6 percent of its GDP, six times higher than the average of other developed economies. This surge in spending, post-2020, has not solely focused on Covid-relief but also on infrastructure development and industries to counter China and address climate change.
Growing Debt and its Consequences
The US has been running deficits since the 1960s, seemingly without facing serious financial crises. This has bolstered the belief that deficits are not detrimental to the economy. Some economists argue that if new public expenditure surpasses government interest payments, it can lead to economic growth and betterment. However, this was more feasible when interest rates were near zero. As interest rates rise, managing deficits becomes increasingly challenging.
The Rising Interest Payments
As interest rates climb, so do interest payments on public loans. The US government’s interest payments are projected to exceed spending on defense and social security programs like Medicaid within a decade. Developed countries have been advised by the Bank for International Settlements to address their deficits promptly to avoid accumulating new debts instead of promoting growth. Unfortunately, the Biden administration seems to overlook this advice, and America’s fiscal irresponsibility continues to worsen.
The Fiscal Responsibility Act 2023
Under pressure from the US Congress, President Biden signed the Fiscal Responsibility Act 2023, aiming to curb expenses by $1.3 trillion in the next ten years. Despite this effort, the US deficit is expected to remain around 6 percent in the coming decade. This highlights the gravity of America’s fiscal situation, with its deficit among the worst in developed countries, and public debt ranking third globally after Japan and Italy.
The Danger of Neglecting the Fiscal Challenge
As America maintains its exceptionalist attitude, it must not disregard the concerning fiscal landscape it faces. The country’s mounting deficit and public debt pose serious risks to its economic stability and long-term growth. Ignoring these critical issues could prove to be a dangerous mistake.
Conclusion
America’s notion of ‘American Exceptionalism’ must be accompanied by prudent fiscal policies to safeguard its economic future. The unprecedented deficit spending and mounting public debt require immediate attention and responsible measures. To maintain its position as a global economic leader, the US must address its fiscal challenges earnestly, prioritizing fiscal responsibility for a secure and prosperous future.
