Growing US debt threatens global economy

The US will be forced to fund a massive increase in its budget deficit with short-term debt, analysts have said, with consequences for money markets and the battle against inflation.

The Congressional Budget Office, the independent fiscal watchdog, this week said aid packages for Ukraine and Israel would help push up the US deficit this fiscal year to $1.9tn — compared with its February prediction of $1.5tn.

“We are spending money as a country like a drunken sailor on shore for the weekend,” said Ajay Rajadhyaksha, global chair of research at Barclays.

The increase in the deficit has long alarmed fiscal hawks, who warn the US’s lack of discipline will inevitably push up borrowing costs and that neither President Joe Biden nor his Republican challenger Donald Trump have substantive plans to shore up the country’s finances.

“It is likely that the share of Treasury bills as a share of total debt increases, which opens up the question of who is going to buy them,” said Torsten Slok, chief economist at Apollo. “This absolutely could strain funding markets.”