Catenaa, Tuesday, December 24, 2024 – America’s growing reliance on debt could trigger a major economic downturn, warns Ruchir Sharma, chair of Rockefeller International, as he predicts the “bubble” of US economic dominance will soon burst.
In a recent column in the Financial Times Sharma underscored the dangers of excessive deficit spending, noting that $2 of new government debt is now required to produce just $1 of GDP growth—an increase of 50% in five years.
Federal debt held by the public is nearing a record high of 100% of GDP and may surpass World War II levels without a catastrophic event driving it, Sharma said.
The cost of servicing this debt, now at $1 trillion annually, has surpassed even defense spending. While US households and corporations maintain strong balance sheets, Sharma cautioned that soaring government debt creates vulnerabilities.
Sharma predicts that investors, fatigued by mounting deficits, may soon demand higher interest rates on new US debt, pressuring Washington to impose fiscal discipline. Such measures, while necessary, could weaken corporate profits and economic growth.
Adding to these challenges, rivals like China and Europe could rebound, threatening America’s economic outperformance, Sharma added. He highlighted the danger of unsustainable stock market valuations, warning, “All the classic signs of extreme prices, valuations, and sentiment suggest the end is near.”
Sharma urged investors to reconsider bets on “American exceptionalism,” predicting that 2025 could see significant shifts in the global economic landscape.
