US National Debt Surpasses $36 Trillion with Fed Survey Flagging Financial Stability Risks
The US national debt has reached $36 trillion, identified as the top threat to financial stability, according to a Federal Reserve survey.
This milestone was achieved just following the previous $35 trillion mark, indicating a rapid increase in federal borrowing. Policymakers are preparing for discussions on spending and taxation, as the new administration and 119th Congress are faced with the challenge of the nation’s fiscal direction.
MacGuineas stated, “The incoming Trump Administration and Members of the 119th Congress face several fiscal hurdles… Their decisions on issues like the debt ceiling, tax cuts, and new policies will have long-term implications for our fiscal health.”
Related Stories
The report’s authors noted that concerns about U.S. fiscal debt sustainability topped the survey, followed by tensions in the Middle East and policy uncertainties. Worries about a potential recession and global trade conflicts also gained more importance in this survey compared to previous ones.
The Fed highlighted the potential amplification of vulnerabilities linked to the nation’s fiscal challenges by rising geopolitical tensions and potential economic slowdowns. This could result in “broad adverse spillovers.”
Geopolitical conflicts like the one in the Middle East or Ukraine could disrupt global markets, leading to inflation and market volatility. The Fed also warned of potential economic downturns causing corrections in asset prices in sectors like equities and real estate.
The report emphasized the risks posed by high levels of corporate and nonbank financial institution leverage, as well as by elevated public debt limiting the government’s ability to respond effectively to shocks. Additionally, the growing threat of cyberattacks targeting financial systems was underscored.
The Fed’s financial stability assessment focused on risks in four key areas: asset valuations, household and business borrowing, financial sector leverage, and funding risks.
The report highlighted that asset values remain high, with low liquidity in financial markets increasing the risk of strain during market volatility. While vulnerabilities from business and household debt were moderate, delinquencies in auto and credit card loans were noted. The banking system was described as sound and resilient, but sensitive to interest rate changes. Hedge fund leverage was reported at a decade-high level, with growing vulnerabilities in some short-term investment vehicles.
