The American economy is currently facing significant challenges due to the increasing government spending, which many believe is unsustainable.
According to data shared by the global capital markets commentary platform, The Kobeissi Letter, in a post on X (formerly Twitter) on June 10, concerns have been raised about the parallels between the current situation and the 2008 Financial Crisis.
Insights from Bank of America’s Global Investment Strategy and Bloomberg show that government expenditures as a percentage of Gross Domestic Product (GDP) have reached 43%, matching levels seen during the Great Recession. This is only 1% lower than the spending levels during World War II, a time of global conflict and extraordinary circumstances that are not present today.
The platform highlighted the alarming fact that current spending levels are nearing those of World War II, with government spending during World War I being significantly lower. The U.S. government is spending at crisis levels, as stated by the platform.
Historical peaks in government spending, such as during the U.S. Civil War, World War I, World War II, the Great Financial Crisis (GFC), and the COVID-19 Pandemic, were also outlined. Despite the Federal Reserve advocating for a “soft landing” in the economy, The Kobeissi Letter’s analysis suggests a more precarious situation, hinting at an underlying crisis hidden by current financial indicators.
There are concerns that by 2033, U.S. government spending could surge to 44% of GDP, echoing levels seen during World War II. This projection raises doubts about the sustainability of current fiscal policies and their long-term economic impact.
Moreover, troubling economic trends in the U.S. have been noted, including soaring inflation rates – the highest in 40 years – driven by persistent deficit spending and prolonged low interest rates. These factors have led to fears of a potential recession, with some predicting a downturn in the latter half of 2024.
Experts warn of further economic challenges ahead, as high inflation and declining consumer sentiment could lead to reduced spending, intensifying concerns about a recession. Macro economist Henrik Zeberg even cautioned that the U.S. economy could face one of the worst recessions since 1929, suggesting that the stock market and crypto sector would first reach a peak before the recession hits.
