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Critical role of US debt sustainability

The critical role of US debt sustainability in the world financial architecture

Multi Asset 2 min read
This first paper delves into the complexities of the US debt-to-GDP ratio, exploring its sustainability in the context of the United States' unique position in the global financial architecture and geopolitical order. This research provides critical insights into how the US can maintain its economic stability and what the potential risks are if current trends continue. This publication is issued by the Pictet Research Institute.
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With the US debt to GDP ratio at historic heights, the study examines why the Rest of the World (ROW) is addicted to US debt and the likelihood of a resulting crisis.

According to Maria Vassalou: “Foreigners have much to lose from a US debt crisis. The ROW has been financing the US deficits by loading up on US dollars, US Treasuries and US equities, all of which will greatly lose in value in case of a US debt crisis. Major central banks and the official sector have every incentive to intervene and put a floor on US assets in times of market turmoil—with a caveat. The US has to maintain its geopolitical dominance and remain the world’s primary engine of innovation and attractive equity returns.

US public debt grows by USD 1 trillion about every 100 days.

A major risk to US debt sustainability is in fact geopolitical in nature. For instance, in the medium-term, the evolving BRICS+ coalition could prove to be a disruptor to the existing global financial architecture and US dominance. In the short-run, though, a major US debt crisis is an unlikely outcome.”

  • Explore the Pictet Research Institute

    Launched at the beginning of 2024, the Pictet Research Institute focuses on producing research on long-term investment topics.

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  • Corporate Portraits at Pictet Geneva: Route des Acacias 60 - 1211 Geneva 73 - CH

    Opinion editorial by Maria Vassalou, PhD, Head of the Pictet Research Institute

    Published in the Financial Times, 26 September 2024

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