American Economy on a tight rope

I would like to emphasize that the horizon in the American economy and in the markets is becoming increasingly dark.

Submitted by Karderinis Isidoros

America is today at the most critical point in its modern history. It is threatened with a collapse which, if it happens, will drag most of the world down.

The U.S. debt has now, amid high inflation, rising interest rates—most economic analysts expect the U.S. central bank to continue raising rates—and growing economic uncertainty in September 2023, topped $33 trillion and amounts to 124% of GDP. And the deficit of the general government – which is the federal and local government together – is over 7% of GDP. This level of debt is more than three times the level of debt in 2008 ($10 trillion) and 10 times the level in 1990 ($3.2 trillion). US debt levels have ballooned significantly in recent years, especially after a 50% increase in federal spending between fiscal years 2019–2021, according to data from the US Treasury Department.

This stark reality resulted in the House and Senate passing necessary legislation in early June 2023 that raised the ceiling on federal borrowing while imposing some limits on spending.

This, of course, was done in order to prevent a catastrophic bankruptcy of the government, i.e., the scenario of the country declaring default, unable to pay its creditors and pay salaries and pensions, which would obviously have a catalytic negative impact on international markets, as well as in the American and global economy, given the size of the American debt.

In particular, the agreement on the debt allows the suspension for two years, until January 1, 2025, i.e., the period after the extremely critical for the entire planet presidential elections in November 2024, the maximum borrowing limit of the American public (31.4 trillion dollars).

The world’s largest economy, however, was once again faced with the prospect of a government shutdown. So, Congress recently passed the short-term funding bill to avoid a government “shutdown” (i.e., US bankruptcy) just hours before the deadline and ensures funding through November 17, while ruling out any new aid to Ukraine. A government shutdown that would furlough tens of thousands of federal employees without pay and suspend various government services would begin at 00:01 ET (04:01 GMT) on Sunday 10/1/2023. An exception, however, would be personnel required for state functions such as defense, police duties or other vital functions, who would remain on duty without pay.

The recent 45-day deal to keep the government open has thrown up a risk from October to November—a point where it could end up doing more damage to fourth-quarter GDP numbers. Bloomberg Economics estimates that each week of shutdown shaves about 0.2 percentage points off annual GDP growth, with most but not all recovered once the government reopens.

At the same time, in March 2023 three banks in the United States of America with significant activity in the field of technology and cryptocurrencies collapsed. Specifically, these are Silvergate Bank, Silicon Valley Bank and Signature Bank. This was followed by the collapse, takeover and closure of another bank, First Republic Bank, in May 2023.

There are currently 725 US banks on the FDIC’s death list. The strain on the financial sector caused by bank failures remains a threat. The banking crisis is not a problem of quality of credit conditions, but is caused – now – by the inability to finance the ever-expanding US debt.

In addition, some new threats threaten to derail the American economy. September’s selloff in stocks pushed the yield on the 10-year note to a 16-year high of 4.6%. Borrowing costs higher for a longer period of time have already sent equity markets tumbling. They could also jeopardize the housing recovery and deter companies from investing.

Also, many financial analysts are calling the impending reactivation of federal student loans, after the end of a 3 1/2-year pandemic freeze, a potential shock to the economy. Nearly 44 million borrowers will start paying an average of $393. Inevitably, this will mean less spending elsewhere, at least for some households.

Since September 15, moreover, the United Auto Workers union has been engaged in a historic strike against Detroit’s three major automakers: Ford, GM and Stellantis N.V., which, according to a study by the Anderson Group, in just one week, cost the US economy over $1.6 billion.

At the same time, oil price crises have typically, throughout US history, helped trigger recessions. In other words, the oil price crises were followed by a recession. High black gold prices increase costs for a wide range of companies and strain consumer budgets, leading to higher inflation and lower consumer spending. It is a recipe for economic disaster that the world is being asked to face once again.

It should also be noted that oil prices have soared since June due to production cuts by the world’s largest crude producers (OPEC+, which includes Russia and Saudi Arabia). International benchmark Brent crude oil prices rose 28% from their June 11 low of $74 a barrel to over $95 a barrel, speeding toward $100 a barrel.

But events in the rest of the world could also drag the US down a downward path. The world’s second largest economy, China, is mired in a real estate crisis. In the euro area, lending is shrinking at a faster pace than at the nadir of the sovereign debt crisis, a sign that already stagnant growth is set to move lower.

In closing, I would like to emphasize that the horizon in the American economy and in the markets is becoming increasingly dark. The dark clouds in the financial sky are thickening, naturally causing worry and fear, and foretelling that the storm will, unfortunately, not be long in coming.

Isidoros Karderinis was born in Athens in 1967. He is a journalist, novelist and poet. He studied economics and completed postgraduate studies in tourism economics. His articles have been published in newspapers, magazines and websites around the world. His poems have been translated into English, French and Spanish and published in poetic anthologies, literary magazines and literary newspaper columns. He has published eight books of poetry and three novels in Greece. His books have been translated and published in the United States, Great Britain, Italy and Spain.

24 thoughts on “American Economy on a tight rope

  1. The collapse of the US currency and economy especially against an increasingly polarized local and global society makes the a gloomy economic forecast highly possible. Every year we observe the flirtations with the collapse of global markets. Some are comfortable with the cyclical nature of things others are fearful that it is only a matter of time.

    Many continue to call for Barbados and SIDs to decouple from the greenback and there value to such an argument. There is a reality that if the US economy collapses under the weight of debt and waning importance as the world’s reserve currency, it will have a calamitous impact on the global economy given the interdependence.

  2. @ David

    The U.S economy and the Bajan one share many similar issues. Of course their political scenario does not help either. They can however open the printery and print a few dollars as their currency can take it right now.

    They will as usual at the 12th hour find a solution as the alternative is unacceptable.

    Here however with our printer taken away by the IMF and the results of the last restructuring still causing pain, we are at a more perplexing crossroad.

    • @John A

      The good thing operating under an IMF arrangement is that the speed of the printing is drastically slowed.

  3. @ David

    Is being tied to the dollar really a bad thing?

    Think about it, if the dollar weakens our toursit market will benefit, especially the UK market. The bulk of our food imports from the USA will not be affected as we buy from them in USD. The American toursit spend the least here and stay for the shortest time. So if we have less of them but more Brits, Europeans and Canadians would that be a bad thing?

    • Barbados ‘safe from inflation’
      By Tony Best

      As the death toll mounts and damage caused by the Israeli-Hamas war escalates, two Bajan experts in Canada see little reason for their birthplace to worry right now about rising energy prices and inflation back home.
      More than 2 000 people on both sides of the war have died since the fighting began, about 1 200 of them in Israel and the rest in Gaza, next door to Tel Aviv.
      Both Winston Cox, a senior economist and a former Governor of Barbados’ Central Bank, and Professor Andy Knight, a Fulbright scholar who is a top foreign affairs specialist at the University of Alberta in Edmonton, don’t believe their homeland is in any imminent danger of being hit with a economic crisis that was traceable to the fighting in the Middle East.
      And as they see it, the fighting is unlikely to trigger the kind of global economic crisis that struck countries in every corner of the globe, Barbados included, in the early 1970s.
      “While it is too early to tell if the conflict may eventually spread to other countries in the Middle East, including Saudi Arabia and Iran, two of the major oil-producing nations there, I don’t see it spreading so quickly, something that would adversely affect Barbados and the rest of the Caribbean region economically,” said Cox. “My advice to Barbadians at home is pray the conflict doesn’t spread. I don’t believe that the war’s expansion would emerge, at least not now.”
      Dr Knight, a political science professor, agreed with Cox.
      “I don’t see it as a spreading geopolitical conflict that would damage the economies of Barbados and its neighbours,” said Knight, an advisor to prominent Canadian and international organisations and national and provincial government in the North American country, “I don’t see it having a significant impact on oil prices at this stage, one that would trigger a significant and damaging escalation in oil and gas prices.”
      Their reactions to the impact of the war on Barbados’ economic picture were in step with the advice offered to Barbadians a few days ago by Aldo Ho Kong King, president of the Barbados Petrol Dealers Association, who was quoted as saying, “There is no need for panic because of this recent development (war). The entire globe relies on fuel, and we sit in the same boat. Obviously, fuel pricing on the island is very high compared to many other areas but our changes in prices have not been significant over time. Every conflict in the world affects many things and one of them is fuel pricing, so much will depend on how long things go on.”
      ‘Potential’ to evolve
      Reached in Quebec where he resides after retirement from the Inter-American Development Bank’s executive board in Washington, Cox told the Sunday Sun that the conflict in the Middle East was not “as clear-cut” as the sudden eruption of war between Russia and the Ukraine. However, the conflict in Israel and Gaza had the “potential” to evolve into a major regional crisis, if it spread to other countries in the Middle East.
      “It is not as clear-cut as in the case of Russia’s invasion of Ukraine that involved the Black Sea. The world knew that it would have a negative impact on global grain prices and on the supply of grain on those countries which depended on grain from Ukraine,” said the former Central Bank of Barbados Governor. “In the case of what is taking place in the Middle east, I do not think this is something in which Barbados will have a lot of global influence.
      “I have noticed that oil prices continued to decline, not by a lot but still they declined,” added Cox. “A few days they declined by US$1.50 per barrel. But it is still early in the trading day.
      “Remember in 1973 when international oil prices went through the roof, the Arab-Israel war led to the global oil crisis and many Barbadians would recall its impact on their country. This time around, we have the potential to do the same with the current crisis but the (oil) market has changed since then. We have lots of new oil producers. The US has grown (almost) self-sufficient. Even so, when or if oil prices start to rise, as a Barbadian I wouldn’t push the panic button. I will await clear signs that the conflict is spreading beyond Gaza and Israel before that happens.”
      In Knight’s case, he used the word “atrocity” to describe the killings of Jews by Palestinian invading forces, saying it was horrendous and couldn’t be condoned. However, he cautioned against “carpet bombing” of Gaza in response to the estimated 1 200 Israeli civilians and soldiers killed during the first few days of the fighting. More than 120 Israelis and some Americans visiting Israeli are now being held as hostages by Hamas.
      “I don’t see the conflict having a severe problem at the (gas) pump right now. It could become a problem if Israel decides to carpet bomb Gaza to kill innocent people in hospitals and schools in Gaza,” he said. “If you try to get rid of Hamas this way by bombing the Palestinian people there, that would be a crime against humanity, and people around the world may [say] they have to cry out against that.”
      Knight believes Barbados must exercise care in what it says in and out of the United Nations about the conflict.
      “Barbados must be careful but it should push the issue of the small island developing states and their agenda for development.”

      Source: Nation

    • A few months of a barrel of oil north of 100 dollars will wipe out much of the gains of the last four years. Including a lot of the forex currently being hoarded at great sacrifice to citizens and bond holders.

  4. Like Gerald Celente said “when all else fails, they take you to war.”

    Apparently “Operation Sandman” is in play. China and Japan have been dumping US T Bills in the Billions. Many other nations are set to follow.

    So Barbados be wary about which basket you’ll be looking to hatch your eggs in.

    China and Saudi Arabia have been signing deal after deal in the billions of $$$, deals in Energy and Infrastructure. The latest is with Huawei.

    Normally, such deals would have been made with the USA but the Crown Prince basically showed them that he’s not to be toyed with, like his predecessors and has taken his business elsewhere. since Trump’s braggadocious attempt to shame the Kingdom by saying they won’t exist for 24 hrs w/o US protection and AI Joe Buydem referring to the kingdom as a pariah state accusing BS of killing Khashoggi.

    A few nations have been trading in the Yuan, Rupee, Ruble and Gold cutting out the parasitic US. The US did cut its nose to spoil its face by cutting Russia off the SWIFT….and spoil its face it did since that move was to Russiya’s benefit.

    BRICS is tightening the screws around the USA’s neck with more nations looking to join.

    In the meantime, the US military has locked its sights onto the resources in the other Americas with a keen interest in Guyana’s offshore reserves.

    Back in 1973, in an effort to win China over to its side and away from the USSR, then President Nixon and Satan’s Emissary, Kissinger took most of US manufacturing sector to China. This detriment to the US was the start of China’s rise to its World Player Status today.
    (Detroit which was once a manufacturing hub took the brunt of that loss)

    If we were living in a ‘real’ world the Criminal Drug-Money laundering Banking sector would be demolished, US Banks are filthy to their core…(FTX Sam Bankman (the irony) and a ‘jew’ like most of them are. Just criminal organisations. Running scam after scam while stealing investors’ money.

    Thanks to Soros and his tribe, now the US is housing and feeding millions coming across the border.

    A trillion $ economy living on debt while resource rich countries are no longer interested in giving away their precious resources for pieces of paper.

    According to the astrologers, the grim reaper is knocking with the return of Pluto in the US’ chart. Looks like the US has sown in the wind…….

  5. @ David

    Yes a jump in Oil prices would be a concern if this drags out. I for one am not concerned if the Americans travel less, once the Brits and Europeans travel more due to a weak dollar..

    • @John A

      The problem as we have discussed times over in this space is: we never see anything imaginative changes whether dismantling tried fiscal and monetary polices or …We are happy to go with the flow and react to the best of our capacity. Our debt burden is closing the window rapidly on available options should another global recession occur in quick time.

  6. There is a good chance Trump will get back in.

    If he does, America will become self sufficient in energy and oil prices will probably fall.

    Putin’s profits will fall and make prosecuting war in the Ukraine hard.

    But who knows.

    Right now his poll numbers are good and the cases against him seem to be collapsing.

  7. Donna
    on October 15, 2023 at 1:47 PM said:
    Rate This

    Trump increased the debt more than Biden.


    It’s the economy, stupid!!

  8. The thread author should invest in a pair of wide angle binoculars.
    The world is facing a debt crisis. It manifests itself in different ways in different economies.

  9. @ David

    In my opinion the world faced its biggest threat to global financial stability a few years back with Covid. We literally ground to a halt for over a year and yet managed to come out the other end. Weakened we all were but we survived.

    The world showed us then how resilient we were and how a global economy could survive a threat that no country in the world escaped.

  10. Prov 22:7:
    “The rich rules over the poor, and the borrower is slave of the lender.”

    If you watch TV you may have noticed most of USA is poor and it’s not Dallas series wealth for all.
    Reality they’re not beautiful people many are quite ugly screwface.

    The greediest most materialistic people on planet earth are septic tanks.
    US GDP as % of World GDP is at 25.32%, long term average of 28.75%.
    US population is equivalent to 4.23% of the total world population.
    top 1% owned 38.5% of the country’s wealth
    58% of Americans are living paycheck to paycheck …

    The thought of China or India (who have over 50% of world population) catching up and becoming richer knocking them off #1 is making them well paranoid. I say bring it on who cares if they go crazy if they got no money.

  11. “I say bring it on who cares if they go crazy if they got no money.”
    But they got guns and WMDs….
    Don’t you care about crazy materialistic losers with access to the most powerful weapons that EVER existed..?

    For decades, this was the case… and everyone cared about this danger…and gave way to them..

    Problem now… is that they are increasing numbers who have become so poor and desperate – that they no longer care…

    …and also MANY others who have developed just as deadly (some even more so) weapons of mass destruction – and who are ALSO now demanding to be feared…

    As a basic BB living on a island that lives off a Credit Card (funded by visitors who are looking for leisure)….. your donkey SHOULD be scared.

  12. RE Trump increased the debt more than Biden.




    • Rating agency gives thumbs up


      INTERNATIONAL CREDIT RATING agency Fitch Ratings believes things are looking up for the Barbados economy and Government’s finances.

      As a result, the United States-based firm raised its outlook for Barbados from stable to positive on Tuesday, while affirming the country’s ‘B’ credit rating.

      Minister in the Ministry of Finance and Economic Affairs Ryan Straughn sees this as positive “reinforcement” for local and foreign investors, and the latest signal that the current administration has been on a strong economic path since coming to office in May 2018.

      The decision by Fitch Ratings comes about two months after another leading credit rating agency Moody’s Investors Service raised Barbados credit rating from Caa1 to B3 while maintaining the stable outlook.

      Straughn welcomed the news yesterday, stating: “The reinforcement by Fitch is consistent with the view that the international community has in relation to Barbados’ reform programme and economic agenda.

      “We continue to essentially buck the trend, because in a world that is becoming more and more uncertain, these messages of reinforcement are important not just to international investors, but equally important to all those economic agents in Barbados, meaning the private sector, and individuals. And coming after the impact of the pandemic, the war and everything, this just reinforces the need to continue on the strong economic path [Government] has been on since 2018,” the minister added.

      Large primary surpluses

      Fitch said in a commentary that the decision to revise the Barbados outlook from stable to positive “reflects the return to large primary surpluses after the pandemic-induced relaxation of fiscal targets, a declining public debt trajectory albeit at high levels, a strengthening economic recovery, and structural reform efforts including ones to state-owned enterprises and the pension system”.

      It said the ‘B’ rating “is supported by high GDP per capita and governance scores (substantially higher than the ‘B’ median), a strengthened external liquidity position, a more favourable debt repayment profile following a comprehensive 2018-2019 restructuring, and [International Monetary Fund] External Fund Facility and Resilience and Sustainability Facility programmes that provide access to financing and underpin reform efforts”.

      However, it added: “These strengths are balanced by vulnerability to external shocks due to its heavy reliance on tourism, high public debt levels and interest burden, and limited domestic financing flexibility.”

      On the Fitch Ratings’ scale, ‘B’ ratings “indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment”.

      Among the positives for the credit rating agency was that Barbados’ economic recovery had accelerated.

      “The post-pandemic rebound has gained momentum despite a slower start compared to regional peers. Real GDP grew 12 per cent in 2022 and 4.1 per cent in first half of 2023, as pandemic restrictions were fully removed,” it stated.

      “Tourist arrivals as of June 2023 reached 87 per cent of 2019 levels and a strong winter high season is expected for 2023-2024. However, the sector faces ongoing constraints from limited airline flight capacity from some key source markets.”

      Barbados meeting its IMF targets was another positive mentioned, as Fitch noted that “the first review of Barbados’ new IMF EFF was completed in June 2023, and all quantitative performance criteria and indicative targets were met”.

      One challenge the commentary flagged was that while Barbados’ debt was declining, it “remains high”.

      “Fitch forecasts the Government debt burden to fall to 115 per cent of GDP in 2023, back in line with pre-pandemic levels (117 per cent in 2019),” the firm stated.

      “Despite the improvement, the debt burden remains one of the highest among Fitch-rated sovereigns. Fitch forecasts debt levels to decline relatively quickly if large primary surpluses are maintained (105 per cent by 2025). Achieving the 60 per cent of GDP rule by fiscal year 2035/36 will require sustained fiscal discipline over a long period, and the absence of any consequential shocks.”

      Source: Nation

    • Canada wants closer ties with the region eh.

      Canada wants closer ties to Caricom

      CANADIAN PRIME MINISTER Pierre Trudeau says there is need for even greater cooperation between Canada and CARICOM to achieve their common objectives.

      In his opening remarks at the first Canada/CARICOM Summit in Ottawa yesterday, Trudeau cited the conflict in the Middle East as an example of “the great turbulence” in the world, and the challenge which it could pose to countries such as Canada and those in CARICOM.

      He said it was therefore important to tighten the longestablished bond between the two regions.

      “Canada is proud of its strong development co-operation with the Caribbean region,” he said, but added there was much more work to be done.

      Several CARICOM heads of government, including Barbados’ Prime Minister Mia Amor Mottley, are participating in the two-day summit at which Trudeau also announced the launch of the CARICOM/ Canada Strategic Partnership. He maintained that “deepening and strengthening our relationship will help us tackle urgent challenges together”.

      The Canadian leader co-chairs the United Nations Sustainable Development Goals Advocates Group with Mottley, with whom he said he continued to be actively engaged because “the world needs to get back on track in achieving the . . . goals by 2030”.

      CARICOM chairman, Dominica’s Prime Minister Roosevelt Skerrit, welcomed the establishment of the CARICOM/Canada Strategic Partnership, which he described as “a permanent joint mechanism for collaboration”.

      “This intrahemispheric partnership will allow for institutionalised and regular dialogue,” he said.

      He pointed out that the Caribbean had traditionally relied on Canada’s advocacy “to highlight our challenges and realities, and promote our interests in international fora where we do not have a voice”.

      Skerrit added that Canada and CARICOM will also work together to strengthen multilateral cooperation on regional and global issues. He cited the Bridgetown Initiative, one of several “innovative and comprehensive financing mechanisms” proposed as solutions to the financial challenges faced by many countries, as “a beacon of hope” in the journey towards reform of the global financial architecture and access to financing.

      Issues such as climate change and resilience; access to finance; reform of the international financial architecture; immigration and regional security are on the two-day agenda.

      CARICOM Secretary General Dr Carla Barnett said they were topics critical to the region’s development.

      The plight of Haiti and the Haitian people will also be on the table, Trudeau assured the CARICOM leaders.

      “We will continue to work with you to put forward Haitian-led solutions, including in the case of a global international intervention.” ( GC)

      Source: Nation

  13. “Don’t you care about crazy materialistic losers with access to the most powerful weapons that EVER existed..?”

    No me no care

    Musical Explosion
    There was an explosion out of Africa
    Next will be an implosion back to Africa

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