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American Debt: Up, Up, and Away
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U.S. Treasury reports show that the amount the U.S. government finances to pay for its spending will top $1 trillion in 2019 for the second straight year.

The Treasury issued debt of $1.34 trillion in 2018, a number that should increase to $1.4 trillion this year. Steven Zeng from Deutsche Bank told Yahoo Finance that the annual new issuances will be between $1.25 trillion and $1.4 trillion each of the next four years.

The issuance was just $550 billion in 2017.

Yahoo Finance noted that the U.S. budget gap during fiscal year 2019 hit $780 billion, a six-year high. Due to tax cuts that were combined with increased spending that number will only continue to grow. The Congressional Budget Office (CBO) expects the budget gap to be $973 billion during this fiscal year and top $1 trillion in 2020.

The CBO says Uncle Sam will fork over some $7 trillion just to service the U.S. debt over the next 10 years.

As an illustration of how wacky spending is around the globe, the U.S. may not even be in that bad of a fiscal condition. A former Treasury official under George W. Bush, Phillip Swagel, said that “with all these problems, we’re still in better shape than so many of the other advanced economies.”

But Federal Reserve Chairman Jerome Powell isn’t so optimistic. He said last week that the American federal budget is “on an unsustainable path that needs to be addressed. There is no time like now to go after that problem.”

Bloomberg said that debt sales have surpassed the era when America was trying to recover from the Great Depression, with the Treasury increasing its debt sales as part of a strategy by the Federal Reserve to allow government debt to slowly roll off its balance sheet.

That outlet argues the deficit — and the $21 trillion total debt — gives ammo to potential 2020 challengers to President Trump. Potential independent candidate Howard Schultz, the founder and former CEO of Starbucks, said last week that both Democrats and Republicans are showing “reckless failure of their constitutional responsibility” in running up so much debt.

Schultz argued a private business in similar condition would face “insolvency.”

Jason Furman, former chief of President Obama’s economic council, fired back on CNBC, arguing that the value of U.S. growth is far above its debt obligations.

“America is not a company,” Furman said. “And in fact, many successful companies are much more leveraged than the United States.”

The Trump administration had predicted that a boom in economic growth due to its tax cuts would offset the loss of funds due to the reduction of the corporate income tax rate. But Trump’s tariffs probably stymied that plan. The Treasury reported that corporate income taxes dropped to $205 billion last fiscal year, a 31 percent decrease from 2017.

Major foreign investors of American debt have reduced their holdings in the past year, including China, which dropped its holdings from $1.138 trillion to $1.12 trillion. Russia sold off much of its holdings, as well, Sputnik News reported.

The top holders of American debt as of November 2018, reports the Treasury, are China at $1.12 trillion, Japan at $1.036 trillion, and Brazil at $311 billion.

The CBO forecasts government spending that is now 20.3 percent of gross domestic product will represent 22.7 percent of GDP by 2020.

Morgan Stanley recently released a memo that said the growing debt is limiting banks’ ability to increase interest rates, which puts more vulnerability on the economy to suffer from long-term macroeconomic issues.

“While it is not unusual to see corporations running up debt during a boom like this, it is unusual to see the government follow suit,” said Morgan Stanley Investment Management’s chief global strategist, Ruchir Sharma.

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