Economic Story, “Are U.S. government bonds still an attractive product?”
Haebom
According to recently released data, credit card debt in the United States will reach $1.8 trillion by the third quarter of 2023. This is the highest figure ever recorded, showing that credit card debt is skyrocketing. This reflects the economic pressures that each household is facing, and raises deep concerns about the state of the economy in the United States.
According to one survey, only 8% of investors with more than $1 million in investable assets consider themselves “wealthy,” while about 60% consider themselves “upper middle class,” and 31% clearly “middle class.” This suggests that the concept of wealth is defined by more complex socioeconomic factors than simply financial abundance.
The standard of 'wealth' is relative
People have different opinions on the financial threshold for feeling wealthy. Some say having a million dollars in the bank is enough, but high net worth individuals set the bar much higher. A significant number said they need more than $3 million to feel wealthy, and a third said they need more than $5 million.
The added financial burden of daily life
More and more people are relying on credit cards for their daily lives, which has led to increased credit card debt and lower personal savings rates. Households are increasingly burdened by rising childcare costs, increased auto loans, higher mortgage rates, and record-breaking rents.
Mark Hambrick, senior economic analyst at Bankrate, points out that structural or secular changes have been taking place for decades that are harming Americans’ ability to manage their finances. At one time, families in the United States could easily live off of just one person’s income, but that is now largely a thing of the past.
Simply put, household debt and the financial burden on families have reached an all-time high. Interest rates are rising, debt is increasing, and the burden has become too great. + Meanwhile, the rich do not feel that they are 'rich'.
The country itself is running a deficit and there is a hole in its household budget.
While rising household debt is a global trend, recent fiscal data from the U.S. Treasury shows that the national deficit has increased.
That's double the amount! The reason is simple: expenses have increased and income has decreased.
This graph shows how the federal deficit changed from fiscal year 2022 to fiscal year 2023. This graph shows the U.S. deficit nearly doubling from $996 billion in fiscal year 2022 to $2.02 trillion in fiscal year 2023 due to increased spending and decreased revenues.
According to the graph, the increase in spending on defense, Medicare, FDIC bailouts, Social Security, and net interest on the debt was the main cause of the deficit increase, while the decrease in revenue from California’s tax revenues, spectrum auction proceeds, and Federal Reserve transfers also contributed to the deficit increase. In particular, the decrease in revenue is shown to account for more than 57% of the total deficit increase.
This fiscal situation is also related to Moody's decision to downgrade the US credit rating outlook to 'negative'. Moody's stated that if the US does not take measures to reduce spending or increase revenues due to high interest rates, the fiscal deficit will remain 'very large, significantly weakening the ability to service its debt'. This means that the US fiscal risk is increasing, and it is sending a constant warning signal to investors.
Moreover, despite these financial problems, the White House press secretary and the Treasury deputy secretary counter that the U.S. economy remains strong and that Treasury bonds are among the safest and most liquid assets in the world. However, the U.S. Treasury is at risk of a government shutdown if it does not pass a stopgap spending bill by November 18, indicating that reaching a deal ahead of the 2024 elections is becoming more difficult.
There are various agendas coming out in Korea ahead of the 2024 general election, and the same is true in the US. Personally, I think that Japanese bonds are much safer than US or Korean bonds. In times like these, I wonder if a cabinet system can push the direction of the country or internal economic policies better.
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