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US debt is a 'noose' around the economy and makes a strong case for moving money to safer markets, veteran strategist says

US Capitol with money illustration
US CapitolDouglas Rissing/Getty Images/iStock
  • The US economy is in a noose created by its growing pile of debt, according to Lyle Stein.

  • The veteran strategist pointed to rapid spending and growing interest costs on the US debt.

  • That could weaken the dollar and incentivize investors to move money out of the country, he warned.

The US's growing debt mountain has the economy in a chokehold – and it makes a strong case for investors to move their money somewhere else, according to veteran market strategist Lyle Stein.

That's largely due to high interest rates relative to economic growth in the US, Stein said. The Fed has hiked interest rates to 5.25%-5.5%, the highest target range since 2001. Economic growth remained slightly below that, with GDP surging 4.9% last quarter.

"If your interest rates are growing faster than the debt, it's a problem," Stein said inan interview with BNN Bloomberg, adding that if rates are at 5% and growth is at 4%, that debt is a noose around your neck, and that's what's happening to the US today."

The Forvest Global Wealth Management president pointed to the US's growing debt burden, which is on pace to hit 124% of GDP by the end of the year, according to a projection from the Congressional Budget office. That's a huge difference when compared to the Eurozone, where the general government debt-to-GDP ratio slumped to 90% over the second quarter, according to Eurostat.

The US also doesn't look poised to rein in its spending anytime soon, and interest expenses on the US debt are rising, with annual interest payments notching $1 trillion last quarter.

Those risks could pose a major headwind for the US dollar, which is currently on its steepest decline so far in 2023. They could also influence investors to take their cash and flee to other nations, Stein warned.

"When you look at this, it makes a much stronger case for moving assets out of North America into safer jurisdictions," Stein said. He added that, when looking primarily at the ratio of debt-to-GDP, he was surprised at how much more attractive Europe was compared to the US.

Markets have been increasingly worried over the US debt balance in recent months, which partly helped fuel the sell-off in US bonds in October. So-called bond vigilantes have been warning that the US might not be able to find buyers for its bonds if the deficit continues to grow and debt keeps piling up.

 

Read the original article on Business Insider

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