On August 5, 2011, the eyes of the world were focused on NASA's launch of the Juno probe to Jupiter. The S&P rating agency then spoiled the party in the United States, by downgrading the American debt rating from “AAA” to “AA+”. A first since the creation of the agency in 1941. Twelve years later, in August 2023, Fitch agrees with the opinion of its colleagues and also lowers the rating of the US debt.
The agency then estimates that the “repeated impasses on the debt ceiling” report an erosion of “trust.” Only the century-old agency Moody's maintains its good assessment of American finances, even specifying in a report last August that a presidency of Kamala Harris would be more beneficial for the finances of the United States than a return of Donald Trump.
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Nevertheless, with public debt peaking at $35.8 trillion as of October 25, 2024 according to the US Treasury, “Suffice it to say that any other country would risk bankruptcy”, according to Jérémy Ghez, professor of economics at HEC and expert on the United States. Total public debt already represents 125% of US GDP in 2024 and is expected to reach 136% within 10 years. On October 19, Treasury Secretary Janet Yellen announced that the budget deficit will reach 6.4% of GDP for fiscal year 2024.
Kamala Harris less worrying than Trump
However, despite these figures, the theme of debt remains absent from the campaign, « neither of the two main candidates in the 2024 presidential election has presented a plan to deal with this growing debt,” laments the Committee for a Responsible Federal Budget, an independent organization specializing in financial issues.
According to Jérémy Ghez, if debt is absent from the debate, it is partly “because of their growth, Americans are not, for the moment, suffering from the weight of their debt. »
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However, there is no question of further widening the budget deficit. The president of the American Federal Reserve (Fed) even estimated last February that the public debt of the United States is “unsustainable” in the long term and that it is “big time” to remedy it. Despite these recommendations, According to estimates from the Committee for a Responsible Federal Budget, Kamala Harris's plan would increase the debt by $3.95 trillion by 2035, compared to $7.75 trillion for Trump's plan.
“While the deficit would need to be reduced by around 3 points of GDP to stabilize the debt burden,” note Florence Pisani.
To achieve this objective, the economist and author of The American economy (published by La Découverte, 2018) observes that it is difficult ” of play on budgetary expenditure. On the other hand, there are wide margins on the revenue side, we can in particular raise taxes on the wealthiest households as well as corporate profits. Kamala Harris' program goes in this direction.
On the other hand, could the imposing customs tariffs desired by Donald Trump not help reduce the deficit by increasing federal revenues?
“It won't bring in as much as the Republican candidate claims. If 60% customs duties are applied to Chinese products, the United States will partly turn away from China and will import more from other less taxed countries. In any case, we will not succeed in replacing tax revenues with customs duties as Donald Trump claims! »
The various customs projects mentioned by the candidate in his campaign would target a total of 3,000 billion dollars of products, or approximately as much as income tax revenue alone. However, according to a Moody's study, the implementation of these taxes would cost 2.1 million jobs in the United States and 1.7% of GDP by 2028.
Congress at the heart of the battle
Donald Trump hopes to be able to impose these customs tariffs alone, citing national security issues. But to increase revenues, reduce expenses, impose customs duties, Congress will be at the heart of decision-making. His election on November 5 – alongside the presidential election – is therefore crucial for the trajectory of the American debt. Especially since, newly elected, Republicans and Democrats will have to agree in January to raise the debt ceiling.
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This ceiling is already causing a slight stir on the financial markets. Spreads on one-year US credit default swaps (CDS) – a measure of payment default risk – rose to their highest level since November 2023. According to a note from Barclays, this increase reflects the concern of investors about raising the debt ceiling. In 2023, already divided, Congress had not reached an agreement, bringing the United States close to default.
“The American debt is full of paradox. We see it in its absence in the presidential campaign even though it is a more political than economic subject in the United States.believes Jérémy Ghez.
A debt that weighs on the global economy
23% of the debt is held by foreign investors. As a result, the issue goes far beyond the borders of the United States. “Buying American debt remains a safe bet for any investor, it is also what does not give rise to any short-term risk,” explains Jérémy Ghez.
In its very first study published on October 15, Pictet Research Institute looked at the crucial role of the sustainability of American debt within the international financial system. Maria Vassalou, director of the Pictet Research Institute, makes the following diagnosis:
« The rest of the world has a lot to lose in a U.S. debt crisis because it has financed the U.S. deficit by buying dollars, Treasuries, and U.S. stocks, all assets that would suffer severe write-downs under of such a crisis. »
Until then, many commentators considered that the American debt was preserved by the “exorbitant privilege” of the dollar. A term – created by Valéry Giscard d'Estaing in 1964 – that is nuanced by Florence Pisani, who reminds us that “compared to GDP, debts to the rest of the world, the euro zone and the United States are comparable.”
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Maria Vassalou, director of the Pictet Research Institute, fears that ” the moving BRICS+ coalition (group of nine countries which meet in annual summits, editor's note) could, for example, in the medium term, disrupt the architecture of the international financial system, which would call into question the domination of the USA.” A scenario – described as « probable » in the study – which would deeply question the sustainability of the American debt.
