As I warned last month, Britain is drowning in debt. The UK is sitting on a £3trillion timebomb that could blow up in our faces at any time. Yet Conservative Prime Minister Rishi Sunak and Labour Party leader Keir Starmer refuse to talk about it.
The main parties will happily squabble about the state pension, NHS funding, conscription for teenagers and Angela Rayner’s tax return, but they’re brushing the UK’s biggest issue under the carpet.
Since the financial crisis in 2008, our national debt has tripled from £1trillion to £3trillion. In that time, it has jumped from 40 percent of our gross domestic product (GDP) – which measures annual economic output – to 100 percent.
With the UK still running a budget deficit of 5.8 percent a year, it should hit 120 percent by 2030.
At which point will be even further down the slippery slope to national bankruptcy.
However, another major Western country owes even more than we do. Not just in total terms, but in proportion to the size of its economy.
And its politicians are even more reluctant to discuss the problem.
That country is the US.
It owes a completely mind bottling $34.8trillion. At the rate it’s increasing, it could top $35trillion by the time you read this.
That’s almost nine times bigger than ours. And it’s not going to stop.
The US economy is much larger than ours, so of course it owes more. But that debt is also bigger relative to its economy.
Since 2016, when Donald Trump was elected US President, the US debt-to-GDP ratio has swelled from 105 percent to 123 percent of GDP, according to the International Monetary Fund.
And it’s on course to hit almost 135 percent by 2029.
If the US falls into recession, which looks more likely by the day, its debt ratio could fly to 140 percent. Which really is the point of no return.
Like us, the US worried a lot about its national debt after the financial crisis. Now it prefers not to think about it.
Trump drove up the deficit by slashing taxes for the rich. Covid inevitably made things worse. Now President Joe Biden is driving it even higher, by pumping the US economy full of stimulus via his bizarrely named Inflation Reduction Act.
This hasn’t reduced inflation, quite the reverse. It has thrown trillions at renewable energy and other risky green projects.
If you wonder why UK the Bank of England refuses to cut interest rates, the US is partly to blame.
Biden’s trillion-dollar stimulus is keeping inflation high, not reducing it. That means the US central banker Federal Reserve dare not cut borrowing costs.
That’s keeping interest rates high over here, but it’s not the only way the US debt mountain threatens us.
If that towering wall of debt comes crashing down, it will smother the entire global economy. We’ll catch it first, given our close trading ties to the US.
The US economy is now heading for an “outright contraction”, Citigroup warns, as consumer debt and unemployment rise.
Rocketing US inflation has savaged incomes, which continue to fall in real terms. Soon the whole debt Ponzi scheme will come crashing down.
This November’s presidential election won’t change anything. Trump will keep cutting taxes if he wins, Biden will keep spending.
Both will avoid reality until it smashes them in the face. That’s their problem, but unfortunately, it will be ours too.
When the US falls into a recession the Fed will be forced to slash interest rates, triggering a collapse in the overvalued dollar. This will send shockwaves through the entire global economy, Citigroup reckons.
If it’s right then hold tight, this is going to hurt.
We don’t owe a penny of that $34trillion debt, but we’ll end up paying for it anyway.
If Labour wins the election, as expected, new chancellor Rachel Reeves will have a terrible mess on her hands. It will destroy the party’s spending plans and she won’t be able to blame this on the Tories. This could be a good election to lose.