Trump’s America is facing a reckoning as it drowns in debt

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What Valéry Giscard d’Estaing called America’s “exorbitant privilege” still seemingly reigns supreme. But for how much longer?

The one-time French president was referring to the commanding position that the American dollar occupies in global finance as the world’s dominant reserve currency, a role that allows the US federal government to borrow almost without limit at relatively favourable interest rates.

This advantage has been much in evidence over the past few weeks. With Paris and other major French cities in flames, money has been pouring out of France and into the traditional safe-haven asset of US Treasuries.

Even UK gilts have benefited from France’s misery; the spread with French national debt has narrowed markedly over the last month.

But the big winner is the US, which ignoring exorbitant privilege might count as odd because objectively, America’s fiscal predicament is in some respects no less dire than that of France.

France faces a ‘doom loop’ as it spirals downwards

Never mind the UK’s £3 trillion ($5.7 trillion) of sovereign debt and the equally hefty French tally, the US recently surged through $US40 trillion ($56.9 trillion), with seemingly no end in sight to 6 per cent-plus budget deficits.

The non-partisan Congressional Budget Office projects that these deficits will drive overall federal debt to record-shattering levels relative to national income over the coming decade, and reach a staggering 155 per cent of gross domestic product (GDP) in 30 years if nothing is done to change course.

As things stand, there is no sign of such action. Rather the reverse. Donald Trump has promised big........

© WA Today