🚨Is the United States going to default on its public debt?

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In the past, no great power lasted indefinitely and so their reserve currency. Historically, a key critical point for many superpowers was when interest payments exceeded defense spending for a sustained period triggering the so-called “Ferguson's Law”. This states that any great power that spends more on debt servicing than on defense risks ceasing to be a great power as its strategic rivals challenge its position. And yet the US interest costs have exceeded defense expenditures for over 2 years now.

The US administration is well aware that the US is currently at the tipping point and the current trajectory of debt will eventually lead to insolvency which in turn undermines the soundness of the US Dollar as well as the entire financial system and lead to a severe economic downturn.

Therefore it identifies a few structural issues that should be addressed to avoid a hegemonic status collapse and to strengthen the country’s global position:

• A record national debt and the biggest budget deficits in history outside of crises and war periods (more on that in the below piece). Calling this a crisis is not an overstatement.

• Persistent and steep current account (trade) deficit - the amount of which the US imports exceed the value of its exports.

• Relatively small share in global manufacturing and goods production. The idea of bringing back high-paid manufacturing jobs and turning the US into a manufacturing powerhouse.

More data on the above two points is included in the below article.

• Overvalued US Dollar on a trade-weighted basis. Too strong US Dollar makes the country less competitive globally as the cost of American-made goods increases which especially hurts the manufacturing sector.

  This comes as countries are selling more goods to the US than the US sells to them (trade deficit) and they receive US Dollars in exchange. Subsequently, they use Dollars to buy US government bonds which on the net makes the currency stronger over time.

  The outstanding performance of the US stock market over the last 15 years has also attracted trillions of foreign savings that also propped up the currency’s strength.

  The US Dollar is also the world’s currency reserve so this creates strong demand for the currency by design.

The Federal Reserve Real Trade-Weighted US Dollar Index is trading at its highest level in 40 years. The index measures the value of the Greenback based on its competitiveness versus trading partners and includes 26 currencies.

The last time, the US Dollar was so expensive the Plaza Accord was implemented among the G-5 nations to depreciate the USD value.

This gauge is more important here as the popular US Dollar index is more related to financial flows and consists of just 6 currencies. Additionally, the majority of the basket's weight is taken by Euro of 57.6%.

All things considered, a lot of questions arise.

Is it possible to solve these issues, reverse or perhaps slow the structural trends mentioned?

What is a Mar-a-Lago Accord and how this potentially could help these problems?

What kind of impact this could have on global trade, investing, and world security?

Would this cause the United States to default on its debt?

Could this lead to a historic financial system reconstruction or a global financial crisis?

Will this end the US stock market dominance?

You will find an attempt to answer those questions in the following sections.

BACKGROUND

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