AAmerica’s huge national debt always worries the world – but apparently even more so in times of rising interest rates. The reason for this are calculations from the American “Congressional Budget Office”, a congressional authority whose task is to examine and estimate expenditure within a budget year. The agency published figures showing that America’s national debt had reached $26.2 trillion at the end of last year, around 97 percent of annual American economic output – and might exceed the previous high of 116 percent from the period immediately following World War II by 2029. This comes at a time when America is experiencing an unusually heated election campaign. In particular, the possibility of Donald Trump returning to the presidency is heating up people’s minds. During the election campaign, he promised to extend the tax cuts from his first term in office if he defeated Joe Biden.
In an interview with the Financial Times newspaper, the head of the independent Congressional Budget Office, Phillip Swagel, now warns with unusually clear words regarding the risks of such an escalating budget policy. He spoke of an “unprecedented path” of fiscal stress and the risk of a “Liz Truss shock.” Mary Elizabeth “Liz” Truss is the former British Prime Minister who was in office for just 45 days in 2022. She was forced to resign as Britain’s financial markets and the pound fell into severe turbulence following Truss announced unmatched tax cuts and increased government borrowing. In memory of this turbulence, financial experts have since referred to particularly violent market reactions to politicians’ decisions as the “Liz Truss shock”.
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