Merril Lynch: Taking Stock of the Four Horsemen of U.S. Public Sector Finances

Merril Lynch: Taking Stock of the Four Horsemen of U.S. Public Sector Finances. “The Four Horsemen of U.S. public sector financing are Demographics, Defense, Decarbonization and Debt. Each horse is mounted and riding high, triggering concerns among some investors of a looming financial apocalypse. We are not as gloomy—the end is not near. However, against a backdrop of unfavorable U.S. demographics, rising geopolitical tensions that necessitates more U.S. defense spending, a hotter planet requiring more capital to decarbonize the world; and mounting debt levels—given the above, we thought it a good time to saddle up and briefly review each horse.(…) Horse Number Four: Debt. Running fiscal deficits in Washington is as American as apple pie. Indeed, thanks to the costs of wars, a global financial crisis, a pandemic, unfunded tax cuts and stimulus programs, the last time the U.S. ran a federal budget surplus was roughly a quarter century ago (2001). As Uncle Sam’s deficit-related borrowing needs have soared this century, so has accumulated debt. Gross public sector debt currently stands at around $27 trillion, or 97%, of GDP. In 2000, the comparable figures were $3.4 trillion and 34%, respectively. What’s more, whereas near-zero interest rates once made large debts relatively affordable, that’s no longer the case. As the cost of borrowing has gone up over the past few years, so have net interest payments. Thanks to higher interest rates, net interest outlays on the U.S.’ public debt rose by 38% in the first 10 months of this fiscal year. For FY 2024, net interest payments are expected to reach a record $892 billion, on par with—if not more than—U.S. defense spending.” Læs hele analysen her four horsemen