Trump's debt crisis: are his policies threatening the global economy?

Trump's debt crisis: are his policies threatening the global economy?

The debt crisis in the USA is increasingly perceived as one of the greatest threats to the global economy. Loud t online The continued rise in debt, coupled with the threat of inflation and political instability, could lead to a dangerous economic standstill. Current estimates show that the inflation rate was 2.3 percent in spring 2023, while economists expect it to rise to 6.5 percent within the next twelve months. A main cause of this development will be President Donald Trump's new tariffs, which are driving up the cost of imports.

Trump himself has hinted that he might fire Federal Reserve Chairman Jerome Powell and is calling for a one-point interest rate cut to reduce the interest burden on the national debt. The key interest rate is currently between 4.25 and 4.50 percent, while Powell's term is expected to last until 2026. Kevin Warsh, a former Fed member and a Trump favorite, is considered a possible successor. Warsh recently criticized the Fed for being too hesitant in its actions.

Political influence and market uncertainty

The prospect of political influence on the Fed is causing concern in markets. Providers like The investment add that new policies under Trump could be hugely important for investors. Trump's agenda includes key issues referred to as the five “Ds”: deglobalization, deficit tax cuts, DOGE (Department of Government Efficiency), deportation and deregulation. The attacks on trade relations in particular could have a noticeable impact on the economy.

The deficit-financed tax cuts are particularly relevant because the tax relief from the 2017 Tax Cuts and Jobs Act runs through the end of 2025 and Trump plans to extend it further. In the short term, higher tariff revenues and tax measures could improve the deficit, but in the long term they could increase national debt. The US debt mountain is described as enormous, but there are ways to avert a crisis by making smart investments in education, infrastructure and digitalization.

Challenges for the future economy

Significant reforms are necessary to avoid a debt crisis. Janet Yellen, former treasurer, calls for tax increases and spending cuts as part of long-term reforms, while Brian Riedl points to the urgency of the situation. In particular, a fairer tax policy, the reduction of subsidies and a more efficient administrative system are areas of action. Confidence in the stability of the US economy is fragile and could disappear at any time. Historical comparisons with the financial crisis of 2008 and the euro crisis of 2012 are repeatedly made to illustrate the urgency of the reforms.

Overall, factual and political developments in the US are a constant source of uncertainty for global markets. Trump and the Fed's next steps will be critical to the stability of the American and international economies.