US debt levels are a ‘rope’ strangling the economy: veteran strategist

US debt levels are a ‘rope’ strangling the economy: veteran strategist

  • The US economy is in a bind created by a growing pile of debt, according to Lyle Stein.
  • The veteran strategist pointed to rapid spending and rising interest costs on US debt.
  • He warned that this could weaken the dollar and encourage investors to move money out of the country.

The growing mountain of debt in the United States is putting the economy in trouble — making a strong case for investors to move their money elsewhere, according to veteran market strategist Lyle Stein.

This is largely due to higher interest rates compared to economic growth in the United States, Stein said. The Federal Reserve raised interest rates to 5.25% to 5.5%, the highest target range since 2001. Economic growth remained slightly below that, with gross domestic product rising 4.9% in the latest quarter.

“If your interest rates are growing faster than the debt, that’s a problem,” Stein said in an interview with BNN Bloomberg, adding that if interest rates are at 5% and growth is at 4%, that debt is a noose around your neck. And this is what is happening to the United States today.”

The head of Forvest Global Wealth Management pointed to the growing debt burden in the United States, which is expected to reach 124% of GDP by the end of the year, according to projections from the Congressional Budget Office. This is a big difference compared to the eurozone, where the ratio of general government debt to GDP fell to 90% during the second quarter, according to Eurostat.

The United States also does not appear ready to rein in its spending any time soon, and interest expenses on US debt are rising, with annual interest payments reaching $1 trillion last quarter.

These risks could pose a significant headwind for the US dollar, which is currently seeing its biggest decline so far in 2023. They could also influence investors to take their money and flee to other countries, Stein warned.

“When you look at this, it makes a much stronger case for moving assets out of North America into safer jurisdictions,” Stein said. He added that when he looked primarily at the debt-to-GDP ratio, he was surprised by how attractive Europe was compared to the United States.

Markets have become increasingly concerned about the US debt stock in recent months, which partly helped fuel the sell-off in US bonds in October. So-called bond vigilantes have been warning that the United States may not be able to find buyers for its bonds if the deficit continues to grow and debt continues to pile up.

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