The US may be the world’s largest economy, but the US government vastly outspends its income. It has not achieved a budget surplus for 23 years and it is currently running a deficit that is, at $1.83trn for the past year alone, bigger than the GDP of Australia. The US national debt has trebled in the last two decades and is now $36trn.
Elon Musk says he is going to fix this by firing some woke public servants. Perhaps that will do the trick. But also perhaps not, because much of the money goes on things the US government can’t realistically stop spending money on – such as the $169bn it will spend on debt interest this year – and much of it is on things like roads, benefits and healthcare that are very important to voters (although, as no one voted for Musk, he may not be that interested in what they think).
The person who is most opposed to cutting government debt is Donald Trump, Musk’s co-leader, who wants to aggressively increase spending on defence and immigration control while cutting the government’s income by slashing corporation tax and personal income tax. It’s for this reason that Republicans risked a government shutdown in an attempt to push through Trump-supported legislation that would allow them to add trillions more to America’s national debt.
Trump and Musk have also shown an appetite for a fight with their central bank, the Federal Reserve. As Liz Truss did with the Bank of England when she arrived in Downing Street in 2022, they have suggested removing the independence of America’s central bank and voiced their antipathy towards those running it. Like Truss, they are hoping that the market for US debt will accept a gamble for growth. It is hard to imagine Trump being unseated as Truss was by market turbulence, but the debt market – those pesky woke bond traders again – may well intervene in his plans.
[See also: The year ahead: Can Kemi Badenoch rescue the Tories?]
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