- 4. 2024.
Is the bankruptcy of the USA waiting for us in the next decade? The new model developed by analysts from Bloomberg Economics based on a million calculations suggests that the growth of public debt until 2034 is unsustainable in 88% of scenarios.
As a result, fears of a possible bankruptcy of the world's strongest economy are growing on the market, which would have unfathomable consequences for the global economy.
American fiscal policy is not sustainable in the long term
The American public debt is approximately 34.5 trillion (thousand billion) dollars, of which almost a third was created in the last 4 years. According to projections by the US Congressional Budget Office, even if the inflation rate falls to 2% and the Federal Reserve lowers interest rates, the fiscal deficit will still continue to spiral out of control.
US public debt (Source: St. Louis Fed)
On top of that, Fed Chairman Jerome Powell said it was "borrowing from future generations", while implying that the fiscal path was unsustainable.
The official debt ceiling or limit is suspended until the beginning of 2025, that is, until after the presidential elections, which are once again turning into a scene of great polarization in American society.
Last year's debt debate between Democrats and Republicans in Congress was only postponed in this way to a later date, and even then it caused a drop in the credit rating. Credit agencies also warned of growing political tensions and the long-term unsustainability of fiscal policy.
The US economy is facing a number of problems
Debt is not the only source of problems for the American economy. For now, it remains uncertain whether interest rates will be lowered in the middle of the year, given that inflation has still not subsided sufficiently. Prolonging the period of high interest rates could have a negative impact on the economy, while lowering them too soon can bring back inflation, which is why the "soft landing" remains uncertain.
Furthermore, in the commercial real estate sector, there is a drop in prices, which creates losses for smaller and medium-sized regional banks. This phenomenon occurred during the coronavirus pandemic, when many offices were closed and employees of numerous companies were transferred to work from home. The governor of the Fed is before Congress recently stated he is certain that there will be more bank failures due to exposure to the commercial real estate sector.
Institutional investors are turning to gold
More and more investment funds and the world's largest banks such as JPMorgan and Bank of America are turning to gold as an instrument for long-term value protection. The price of gold it grew almost 17% in the last year.
It is currently around 2,160 euros per ounce, or 2,350 dollars per ounce. According to estimates by Bank of America, the price should break through $2,400 per ounce within this year, while JPMorgan is talking about $2,500.
Central banks continue to hoard gold, particularly the People's Bank of China, which acquired 12 tons in February. More and more countries, about 34 of them to be exact, are considering joining BRICS, which is working on de-dollarization and whose members are increasingly flirting with the idea of "gold currencies".
Gold thus, it comes into the center of geopolitical turmoil and could become even more desirable as an instrument for long-term asset value protection from the perspective of large institutional investors.
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