US government debt now exceeds 120 per cent of GDP, which means that the debt is greater than the country's annual economic output. The increase, from around 70 per cent 15 years ago to over 122 per cent by 2023, is driven by the 2008 financial crisis, pandemic stimuli and recurrent budget deficits. High indebtedness entails risks such as increased interest expenses, reduced fiscal space and potential credit rating downgrades. U.S. interest spending is now higher than the defense budget, raising concerns about long-term sustainability. Despite this, the United States has historically handled debt through economic growth and tax revenues, but continued debt build-up without equivalent growth could lead to serious challenges ahead.
Is an expression that describes investors in the bond market who, through their behavior, influence a country's economic policy. Coined in the 1980s, it is used to describe how the bond market can "punish" governments that pursue what investors consider to be unsustainable economic policies, for example through large budget deficits or rapid debt build-up.
When bond investors lose confidence in a country's economic policy: They sell their bonds, causing bond prices to fall and interest rates to rise.
Higher interest rates increase government borrowing costs, which could put pressure on the government to change its policies to calm markets.
US in the 1980s: The term was popularized during this period, when high budget deficits led to rising interest rates and pressure for political change.
Euro crisis (2010 s): Countries like Greece, Spain and Italy saw sharp interest rate hikes as bond investors lost confidence in their debt management.
"Vigilantes" refers to self-appointed guards who, through their actions, seek to "discipline" governments that do not operate responsibly. It shows how the market can have a significant role as a counter force to political decisions.