Friday's Market Minute: America's Staggering Debt

The St. Louis Fed released a paper this month with very ominous overtones. It spoke of both economic and financial "ruin," but didn’t mention interest rates or tariff risk once. The existential risk that has the Fed worried is debt. In “Making Sense of the National Debt,” Fed experts pose the question: how much debt can an economy sustain?

Gross Domestic Product determines the national income, and therefore, how much debt can be supported, according to the report. The U.S. national debt recently surpassed $23 trillion, which is the equivalent of $70,000 per citizen. On Wednesday, the second look at third quarter GDP showed quarterly growth of 2.1%, slightly above previous estimates but a far cry from the 3.1% growth earlier this year. An unsustainable way of accumulating and paying off national debt, the report argues, is printing money. Perhaps what has investors worried the most is nobody seems to care. As the presidential election draws near, viewers of recent debates may have noticed little input on the debt crisis.

Politicians are not elected by being pragmatic; they are elected by pointing to that far-off horizon, only looking up when it starts to storm. That storm has come and gone for many South American countries where governments printed money to solve their own debt crises, resulting in hyperinflation and the aforementioned “financial ruin”. In a country like the United States where long-term fiscal policy is set by short-term politicians, ignorance is not always bliss.

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