US debt is like a 'boiling frog' for the US economy, JP Morgan warns


  • JP Morgan has warned that America's growing debt pile is a „boiling frog” for the US economy.
  • The Congressional Budget Office estimates that government bills will outpace revenues in the early 2030s.
  • But the U.S. is unlikely to reduce its discretionary spending anytime soon, the bank said.

America's $34 trillion debt mountain could be a „boiling frog” event for the economy, as higher deficits and ballooning debt servicing costs could easily become unsustainable, JP Morgan warned.

A The boiling frog A scenario is when people fail to act on a potential problem that grows over time, causing it to become more severe until it eventually bubbles up. A frog thrown into boiling water may jump out, but if the water boils slowly, it will be too late by the time you notice it is being cooked.

The old metaphor easily applies to America's debt situation, the bank said in its 2024 outlook. It's an issue that has worried economists for years, and calls for something to change have grown louder as the government continues to borrow at record levels.

National Debt Hits New $34 Trillion This month, the effect of lawmakers raising the U.S. debt ceiling last year is to avoid a default. According to the Congressional Budget Office, the debt picture will only get worse in the coming years, as America's debt spending, debt spending and Net interest payment on loan By the early 2030s, the total revenue of the government was higher.

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„The US problem is the starting point; each round of fiscal stimulus brings the US one step closer to debt default,” said JP Morgan strategist Michael Sembalest. „However, we have become accustomed to deteriorating US government finances with limited consequences for investors, and one day that may change (the boiling frog analogy),” Sembalest added.

Sembalest predicted that the pressure from Markets And Assessing Agent It would force the government to make „significant changes” to its taxation and entitlement programs, such as introducing new wealth taxes.

But it doesn't look like the U.S. will scale back its discretionary spending significantly. It's an issue lawmakers have been talking about for months, with Congress yet to approve a budget for the fiscal year.

„America has gone off course,” Cembalest said of potential cuts in discretionary spending.

JP Morgan strategists are predicting a „boiling frog” recession in 2023 and 2024, where aggressive central bank tightening leads to a globally synchronized recession. The risks of a recession this year are still alive, Sembalest warned, though he noted that the coming downturn will be mild.

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