Bangkok: The U.S. federal government's debt has reached approximately $40 trillion, sparking discussions on whether the world's largest economy is facing a looming debt crisis. With financing costs on the rise, the potential impact extends beyond U.S. borders, raising concerns for countries like Thailand.
According to Thai News Agency, the program "News Highlights, Hot Issues" featured a segment titled ECON WORLD: Economic Watch, where Warin Sachadev engaged in a dialogue with Burin Adulwattana, an economist specializing in international investment. They explored the implications of the U.S. public debt, the Federal Reserve's monetary policy direction, and the risks posed by high bond yields, which are presenting significant challenges to the global economy.
Mr. Burin highlighted that the U.S. debt status is significant, with the federal debt reaching about $40 trillion, a historic peak. However, assessing risk requires examining the debt structure. Approximately $32 trillion is held by the public, while around $8 trillion is intragovernmental debt. This classification aligns with the U.S. Treasury's division of government debt, impacting daily borrowing and repayment figures.
While the $32 trillion public debt appears substantial, Mr. Burin noted that relative to the U.S. economy's size, it constitutes roughly 100% of GDP. This level remains manageable if the U.S. sustains its income-generating capacity and economic growth. The pressing question is not merely the debt amount, but how long the U.S. can sustain the debt cost.
High bond yields have made debt more expensive, affecting global financial systems. Rising bond yields are problematic for the U.S. and globally, as governments issuing new bonds or rolling over existing debt face higher financing costs. Companies and businesses are also impacted, facing increased borrowing costs, which hinders investment and expansion.
The U.S. Treasury Department releases government bond yield rates daily, serving as a financing cost reference in the bond market. With substantial debt and the need to raise funds amid high interest rates and bond yields, managing existing debt's burden becomes crucial.
The situation is closely tied to the U.S. Federal Reserve's (Fed) policies. Mr. Burin believes the Fed faces a challenge in balancing interest rates to control inflation and support the economy. Lowering rates prematurely could harm Fed's credibility, while high rates could strain an already fragile economy.
Additionally, Mr. Burin noted changes in Fed Chairman Kevin Warsh's communication approach, leading to market reliance on economic data for policy direction, potentially causing bond market volatility. Fed information confirms Warsh's continuation as chair, with a scheduled keynote speech at the Jackson Hole Economic Policy Symposium on August 28, 2026. The July FOMC meeting minutes were released on August 19.
This scenario extends beyond the U.S., affecting countries like Thailand. Rising bond yields impact global financing costs. For Thailand, investment borrowing costs may increase, complicating domestic economic management. Mr. Burin suggests Thailand should focus on restructuring its economy to enhance income-generating potential, beyond its traditional economic framework.
Agriculture, for instance, should aim to add value and utilize land for stable income. Emerging sectors like data centers and AI, crucial to Thailand's economy, require government focus beyond tax incentives. The benefits to the country and communities, considering high resource demands, are vital.
Ultimately, the $40 trillion U.S. debt figure, while alarming, must be viewed in the context of the economy's size, revenue generation capability, and debt-bearing costs. As long as the U.S. maintains revenue and investor confidence, high debt levels can be managed, according to Mr. Burin.
However, with large debt in a high bond yield environment and uncertainty over Fed interest rates, financing costs become a critical factor. For Thailand, while it cannot influence Fed rates or resolve U.S. debt issues, restructuring its economy to enhance efficiency and prepare for a potentially costly financial future is crucial.