National Debt Origins: Uncovering the Source of Defense Funds
In a concerning development, debt levels are on the rise in many advanced economies, including the United States. This trend is not isolated, as the market for long-term securities from France, the UK, and the US remains in a fragile state.
The increase in state debts is not a result of profligate social policies, but rather governments' efforts to rescue banks, stabilize the financial system, and mitigate economic downturns, as explained by the Bank for International Settlements (BIS). The high state debts are a result of a series of economic crises, including the global financial crisis and the COVID-19 pandemic.
The debt-to-GDP ratio of the US is projected to reach 120% by 2035, according to reports. The debt-to-GDP ratio of industrialized countries, as reported by the Organisation for Economic Co-operation and Development (OECD), is currently at 115 percent, over 40 percentage points higher than at the beginning of the century.
Governments in industrialized countries such as Germany, the USA, and France are under high pressure to implement reforms due to rising public debt. In the US, Social Security has been cut, unemployment benefits are set to be reduced, and pension funds are seen as in need of repair. In Britain and Germany, similar adjustments are being considered.
The BIS has also reported a decline in productivity growth in many advanced economies for decades and a recent slowdown in several emerging markets. To meet investors' demands, extended working hours, relaxed environmental regulations, and increased budgets for internal security are measures being taken.
The US dollar is approaching a crisis of confidence, according to ING. The yield on 30-year French government bonds is currently the highest since 2008, and the yield on US Treasury bonds has been on the rise. In some countries, corporate debt has reached record highs, and the debt of companies worldwide is increasing, as reported by the OECD.
The French government's austerity package for 2026 is politically unsustainable, leading to a risk premium for French borrowing and an increase in interest rates, as reported by ECB President Christine Lagarde. A new round of "austerity" policies is on the horizon, targeting social services and benefits.
The UK is facing potential pressure for an IMF bailout, as reported by the Sunday Telegraph. The Chancellor of the Exchequer in the UK faces a budget deficit of around £50 billion, and yields on 30-year UK bonds have reached their highest level since 1998, increasing pressure on the government to restore investor confidence.
In conclusion, advanced economies are grappling with mounting debt levels, and governments are under pressure to implement reforms to restore investor confidence and prevent their creditworthiness from being compromised. The economic challenges are far from over, and the road to recovery will likely be a long and difficult one.
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