#MacroFriday: Shutdown Underlines US Mounting Debt Burden

 

Last wednesday, the U.S. government entered a shutdown after Republicans and Democrats failed to agree on a new federal funding bill. As a result, non-essential government functions have been suspended: ‘non-essential’ federal workers are furloughed without pay, while others in ‘essential’ roles continue to work temporarily unpaid. President Trump’s renewed threats of potential layoffs in public workers have added uncertainty to the situation. The timing is particularly delicate as US consumer confidence declined sharply in September, with consumers citing growing anxiety about their employment status.

 

The previous shutdown, during President Trump’s first administration, lasted for 35 days and was the longest in history. The current one already ranks as the fourth longest. The chart below underscores the scale and structural nature of America’s fiscal challenge. In the late 1990s, the U.S. government was running a budget surplus. Since then, its fiscal position has deteriorated dramatically. Interest expenses as a share of GDP are climbing as the national debt continues to mount, and annual deficits are expected to remain below –5% of GDP over the coming decade.  The US governement’s debt mountain has become a growing weight around its neck. The shutdown may prove temporary, but structural reforms are much needed the restore the credibility.