Crispus Nyaga

Crispus Nyaga is a Nairobi-based trader and analyst. He started trading more than 7 years ago as a student. He has published in several reputable websites like The Street, Benzinga, and Seeking Alpha. He focuses mostly on G20 currencies, commodities like Crude oil and Gold, and European and American large-cap companies.

United States is the biggest economy in the world with a total GDP of almost $20 trillion and a population of more than 325 million people. It is followed by China and Japan, which have a GDP of $12.2 trillion and $4.8 trillion respectively. The US economy is well diverse, with many sectors contributing to the economy. These sectors include agriculture, finance, technology, retail, and energy among others.

As a democratic country, the US holds a national election every two years where new senators and representatives are elected. A presidential election happens every four years. In the country, two parties – democrats and republicans – dominate the political scene. Republicans have always been champions of a small government while democrats have been more for a large government. Republicans are known to be fiscal conservatives.

In the past few years, the US government has been adding debt to the economy and yesterday, this reached a new milestone. The total national debt reached a new high of more than $22 trillion. The debt has been growing for decades but during the Obama administration, the debt almost doubled. In the Trump administration, the debt has grown by more than a trillion dollars.

The country’s debt has grown because of a number of reasons. First, the country has continued to engage in many wars around the world. This has led to an inflated defense spending, which is more than $700 billion every year. This is higher than the combined defense spending of almost all countries combined. In comparison, China spends about $145 billion on defense. Second, the country has continued to spend on welfare programs like medicare and Medicaid. In fact, under Obama, the spending on these programs rose from $6 trillion to more than $14 trillion.

The debt situation has worsened under Trump, who implemented tax cuts programs. As such, increased government spending, supported by lower income has led to a widening of the debt. This may continue if the democrats come back to power. The proposed New Green Deal is estimated to cost the US economy more than $2 trillion every year. In total, the current debt to GDP ratio is more than 105%. This dwarfs the Japan’s 236%. China’s published debt to GDP ratio is below 50%. However, it is more complicated than that because of how government-owned banks lend to state-owned enterprises and town-village enterprises. Indeed, unofficial statistics place this figure at 300%.

In addition to the national debt, American companies have continued to add more debt. In fact, the total corporate debt in the United States has gone up to more than $9 trillion. This debt has gone to mostly mergers and acquisitions, dividends, and share buybacks.

Individuals too have been ramping up debt mostly because of the low interest rates. Household debt stands at more than $13 trillion and delinquencies have started to go up. In fact, a report published yesterday showed that most Americans with auto loans were behind in their payments.

All this mean that the US economy may currently at a risky place. However, this is manageable because the economy is growing and the fact that the debt is in dollars. This means that in case of a default, the US could indeed print money and pay back to the lenders. Of course, this may lead to inflation and a lack of confidence on the dollar. A rise in inflation may lead to a sharp jump in the price of gold, which is often viewed as an inflation hedge.

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