U.S. public debt outstanding is reported to have surpassed $40 trillion for the first time, renewing attention on the current capital-market structure underpinned by the “twin deficits” of the fiscal and current-account deficits. Concerns have been raised about a “doom loop” in which higher interest rates inflate future interest payments and prompt additional borrowing.
Breaking news reports say U.S. public debt outstanding has exceeded $40 trillion for the first time, focusing attention on the scale of the fiscal deficit and developments in the financial markets that support it. Some observers believe that the foundations of the era in which the dollar, as the world’s reserve currency, attracted global capital over the long term are beginning to erode, putting fiscal accountability at issue.
The article points out that when interest rates rise, the interest burden increases, potentially leading to greater issuance of government bonds to cover the shortfall. It identifies as a serious concern the possibility that this could create a cycle known as a “doom loop.”
As for the ownership structure of U.S. Treasuries, overseas investors hold a certain share, while private-sector funding is described as accounting for a relatively large proportion. One view presented is that, because of this ownership structure, fiscal concerns are more likely to trigger capital outflows and currency depreciation, implying that market confidence in fiscal management can constrain policy.
Compared with Japan, some observers believe U.S. fiscal risks are higher than in the past, while the long-term interest-rate outlook and foreign policy are cited as factors directly affecting investment decisions. Going forward, attention is expected to focus on how the United States demonstrates the level of interest rates and the transparency and sustainability of its fiscal management.