$34 Trillion National Debt Poses 'Boiling Frog' Threat To US Economy, JPMorgan Warns

Global investment bank JPMorgan has sent out a warning signal, likening the ballooning $34 trillion U.S. national debt to a ‘boiling frog’ situation, which could potentially lead to an unmanageable financial crisis.

What Happened: The U.S. national debt has hit a new high of $34 trillion, stoking fears of a ‘boiling frog’ scenario. JPMorgan suggests that this burgeoning debt issue, exacerbated by the government's record borrowing, could result in an insurmountable financial crisis if left unchecked, according to a report by Business Insider.

A situation akin to a boiling frog occurs when individuals neglect to address a developing issue, allowing it to escalate gradually until it reaches a critical point. If a frog is placed in already boiling water, it will likely jump out, but if the water heats up gradually, the frog may not realize it’s being cooked until it’s too late.

The Congressional Budget Office projects that by the early 2030s, the U.S.’s mandatory spending and net interest payments on the debt could eclipse the government’s total revenue. “The problem for the U.S. is the starting point; every round of fiscal stimulus brings the U.S. one step closer to debt unsustainability,” asserts Michael Cembalest, a strategist at JPMorgan.

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While the bank had earlier projected a ‘boiling frog’ recession for 2023 and 2024, Cembalest opines that the risks of recession are still very much present, although any forthcoming downturn is expected to be mild.

Why It Matters: The Treasury's debt tracker shows that the national debt surpassed $34 trillion for the first time ever last week. The national debt is the total amount the federal government has borrowed to finance its expenses, often via marketable securities like Treasury bonds and notes.

The debt level has been steeply rising since 1982, when it crossed the $1 trillion mark for the first time. It breached $10 trillion in 2008, hit $20 trillion in 2017, and has been spiraling upwards. The growing U.S. debt poses risks for both the economy and markets. The U.S. federal government debt is now at its highest percentage of GDP since World War II, according to a report by the Council on Foreign Relations in December. 

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