JPMorgan Warns of Economic Risks as US National Debt Hits $34 Trillion

In a recent estimate by the Congressional Budget Office, the United States is facing a concerning “boiling frog” situation with its national debt reaching a staggering $34 trillion. The warning comes as government expenditure is projected to surpass revenues by the early 2030s, a trend that financial giant JPMorgan predicts will persist due to the unlikelihood of the US cutting back on discretionary spending.

Describing the debt situation as a potential “boiling frog” phenomenon, JPMorgan emphasizes that escalating deficits and growing debt servicing costs could become unsustainable, drawing parallels to the age-old metaphor where a frog fails to notice a gradual increase in temperature until it’s too late.

Despite economists expressing concerns for years and urging changes in spending patterns, the US government continues to borrow at record volumes, with the national debt set to hit a new high of $34 trillion in January. The Congressional Budget Office estimates that by the early 2030s, entitlement spending, mandatory spending, and net interest payments on the debt will exceed the government’s total revenue.

While UBS predicts ongoing economic growth in 2024, it anticipates a slowdown due to headwinds facing US consumers, such as higher interest rates and the resumption of student loan repayments. UBS Global Wealth Management suggests that consumer spending may decrease, leading to an increase in saving rates.

Despite the current spending trend by consumers, UBS economists believe it is unsustainable, cautioning that a sudden spike in the savings rate could pose risks to the economy. The base of the economy heavily depends on the trajectory of the savings rate, and a gradual increase is seen as a more favorable scenario, while a rapid surge could lead to a recession.

Despite potential financial challenges for households, UBS points out that the majority of Americans have jobs and are receiving modest wage raises. This, coupled with a strong job market and healthy household and business balance sheets, leads UBS to believe that a significant recession is unlikely in the near future, although some risks remain.