The US government’s debt is now at $40 trillion. That figure can sound remote and meaningless, but the fact is, it has a way of affecting India in ways we don’t fully anticipate. Foreign investors start pulling out from India’s market and currency gets weaker. From inflation to job markets, US debt has a global effect, whether we like it or not.
Because the traditional shock absorbers, banks, have less room to grow, more of the market’s real ability to handle stress has quietly shifted to hedge funds and other leveraged, less regulated players, the same funds running the basis trade mentioned earlier.
Economists have a name for what happens when a central bank’s independence quietly bends under the weight of government borrowing needs: fiscal dominance. It’s the slow drift toward that condition, not some Hollywood-style default, that should worry anyone watching from outside America’s borders.
Selected issues, clear explanations and thoughtful perspectives—delivered when we publish.
