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US debt mountain

America's ongoing debt disaster is the result of a mismatch between federal spending and revenues.

Griffin cited Congressional Budget Office data, which revealed that the U.S. government incurred a total deficit that was 6.2% of gross domestic product (GDP) in 2023. They also spent 2.4% of GDP on national debt interest payments alone.

“If current laws governing taxes and spending generally remained unchanged, the federal budget deficit would increase significantly in relation to gross domestic product over the next 30 years,” the CBO projects. This could have significant economic and financial consequences.

The CBO explains: “Among its other effects, it would slow economic growth, drive up interest payments to foreign holders of U.S. debt, heighten the risk of a fiscal crisis, increase the likelihood of other adverse outcomes, and make the nation’s fiscal position more vulnerable to an increase in interest rates.”

One area of government spending that Griffin highlighted as a major strain on the U.S. economy is entitlements — like Social Security, Medicare, Medicaid, Unemployment Insurance and other social welfare programs.

Social Security currently accounts for 22% of government spending, according to U.S. Treasury data. It’s the largest category of federal spending, along with health care — and it has become a major battleground, with Republican politicians constantly calling for cuts.

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Clouds clearing for consumers

Griffin described 2023 as a “tumultuous year for investors and central bankers” — one that featured extreme mixed messages on the economic front.

“In the United States, for example, the central bank fought against inflation, while investors navigated erratic data that alternated between signaling higher inflation, a potential soft landing, or a recession,” he wrote in his letter to investors.

However, the money maestro does see some light on the horizon. Looking ahead, Griffin said he expects the economic landscape in the U.S. to remain “challenging” in the medium-term but to slowly move to a “more favorable climate for fixed-income markets as inflation eases.”

He also said the nation’s “economic growth is likely to be modest” through 2024 as the central bank continues its fight to bring down inflation.

As the Federal Reserve slowly gains more control over the economy, Griffin said “consumers should benefit from an increase in real income due to declining inflation and continued wage growth.”

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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.


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