US debt sparks growing investor concern

The United States has a significant weakness: its public debt, which has surpassed $40,000 billion. This growing issue has investors wondering how long the bond market will continue to ignore the problem. However, the concern is not only financial; Americans are also increasingly pessimistic. The upcoming midterm elections in November could turn this discontent into a political issue for Donald Trump.

Rhod Shaw, chairman of the lobbying firm Alpine Group, sees a risk of a deeper crisis in this combination of factors. In an interview, he warned that without a crisis, it is unlikely Washington will react.

Shaw described the current state of the United States as “discontented.” He noted that the University of Michigan’s consumer confidence index has never been negative since the late 1950s, not even during the Covid pandemic, the Vietnam War, or the global financial crisis.

Midterm Elections and Debt

The discontent is likely to impact the midterm elections, with voters concerned about inflation and the economic situation. The Iranian issue has also become an economic problem, fueling discontent. Shaw believes that Trump is aware of the issue but may not fully understand the concerns of the average voter.

The markets are watching the situation closely, wondering if the bond market will finally push Washington to address the debt and spending issues. However, Shaw noted that tackling the debt problem is a political challenge that no one has been able to overcome, as it requires sacrifices.

The underlying concern is whether the situation will reach a breaking point before Washington reacts. Shaw hopes that someone will be able to manage the situation and avoid a crisis, but he believes that it is unlikely without a significant event.

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Business and Investment

Companies are disoriented and struggling to plan long-term investments due to changing political priorities. Some have invested in green transition projects based on the Inflation Reduction Act, only to see the new administration try to block them. Shaw noted that incentives are not enough; businesses need a stable model to invest in the long term.

The most common request Shaw hears is for someone to guarantee 10 years of stability and certainty from Washington. He believes that the midterm elections may not necessarily change the situation, as the current administration has learned to use executive powers and federal agencies to govern.

Shaw described Trump as a negotiator who views America as a business and conducts the presidency like his own business dealings.

Global Relations and Risks

Shaw noted that the fracture with Europe is not necessarily structural, but rather a result of economic and political pressures. American companies are under pressure to invest in the US. European companies looking to enter the American market must consider the percentage of Chinese components in their products.

The biggest risk for the United States, according to Shaw, is that politics will continue to delay difficult decisions. The debt, interest, and loss of confidence are problems that can only be corrected gradually, but Shaw fears that it may only happen when forced, at a much higher cost.