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A senior JPMorgan Chase analyst has warned that the country’s soaring national debt, which recently surpassed a record $34 trillion, resembles a “boiled frog” for the economy and Wall Street investors.
Michael Chamberrest, head of markets and investment strategy for JPMorgan’s wealth management division, predicted dire consequences for the economy if the Biden administration doesn’t start tackling the debt problem.
The country cannot sustain a growing budget deficit and ballooning net interest payments, which are soon expected to exceed total federal revenue by early next year, Chamberrest said in a newsletter published last week by JPMorgan. I wrote.
“The problem for the U.S. is the starting point. Any fiscal stimulus moves the U.S. one step closer to debt unsustainability,” Cembalest said. I wrote a newsletter titled “Pillow Talk.”
“But we’re used to seeing the U.S. government’s finances deteriorate with limited impact on investors, and that may change someday (the boiled frog analogy).”
The concept of “boiling a frog” comes from a metaphor used to describe situations in which a series of undesirable conditions are tolerated over an extended period of time, such as a frog being thrown into water that gradually heats up.
When the situation becomes too dire and the water boils, it is too late for the frog to act and it is cooked alive.
Mr. Chamberrest predicted that by the beginning of the next decade, “all federal revenue will be consumed by entitlement payments and interest on the federal debt.”
“Entitlement payments” refers to Medicaid, Medicare, Social Security, unemployment insurance, and other aspects of the federal welfare safety net.
Cembalest wrote that he expects “a combination of market pressures and ratings agency downgrades” to “force the United States to make significant tax and entitlement changes” within the next decade.
In November, Moody’s downgraded the U.S. government’s credit rating outlook from “stable” to “negative.”
Last summer, Fitch Ratings downgraded the federal government’s long-term credit rating from AAA to AA+.
The national debt, the total amount owed by the federal government, was $34.006 trillion as of Monday. According to the Ministry of Finance’s official debt tracking authority.
The Congressional Budget Office’s January 2020 projections predicted that total federal debt would exceed $34 trillion in fiscal year 2029.
But debt rose faster than expected due to increased government spending due to the 2020 pandemic that shut down much of the U.S. economy.
The government borrowed heavily under then-President Donald Trump and current President Joe Biden to stabilize the economy and support the recovery.
However, this recovery was accompanied by a spike in inflation, raising interest rates and increasing the cost of debt servicing for governments.
On Sunday, Congress agreed to a $1.59 trillion spending deal to avoid another government shutdown.
with post wire
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