The constantly increasing public debt of the United States and the ever-higher cost of servicing it may lead to a new period of expensive money across the entire world. This is the assessment of economists who spoke to the Russian newspaper Vedomosti, pointing out that central banks cannot ignore the monetary policy of the US Federal Reserve, as its decisions influence capital flows at an international level. The importance of the issue is immense, as the American public debt has now exceeded $37 trillion, a level that corresponds to more than 120% of US GDP. At the same time, annual spending on interest payments has soared to historical highs, surpassing even the defense budgets of many major countries.
High US interest rates boost the dollar's attractiveness
High interest rates in the US make dollar-denominated assets more attractive, a fact that influences the monetary policy of other countries, explained Mikhail Gordiyenko, a professor at the Department of Sustainable Development Finance at the Plekhanov Russian University of Economics. As he noted, if another country proceeds with a sharp reduction of its base interest rate under these conditions, it may cause a weakening of its national currency, capital outflow, and an increase in imported inflation. This is a mechanism that has been observed repeatedly in emerging economies, where the decisions of the Federal Reserve directly influence exchange rates and borrowing costs.
American debt could affect the entire global economy
The increasing debt of the US and its servicing costs may affect the entire global economy, noted Yegor Susin, head of the Market Strategy Center at Gazprombank. "The dollar still dominates the global financial system. A large percentage of transactions, foreign exchange reserves, payments, investments, and debts globally are denominated in dollars. For this reason, the rise in interest rates and dollar yields will also affect other regions," he emphasized. According to data from the International Monetary Fund, approximately 58% of global foreign exchange reserves are still held in dollars, a fact that keeps the American currency at the top of the international financial system. Svetlana Frumina, head of the Department of Global Financial Markets and Financial Technology at the Plekhanov Russian University of Economics, added that "the issue of American debt is gradually turning into a global factor of tighter financial conditions." This means that many central banks might delay interest rate cuts or even maintain a more restrictive monetary policy in order to protect their currencies and prevent capital outflows. For businesses and households, such a development translates into more expensive mortgage and business loans, higher financing costs, and a potential slowdown in economic activity.
Markets still trust American bonds
The leading international rating agencies, such as S&P Global and Fitch, have already downgraded the credit rating of the US from AAA to AA+, yet the majority of investors and states still consider American government bonds to be reliable investment assets, while high interest rates make them even more attractive. "The United States possesses the largest and most liquid government bond market in the world, and American government bonds maintain their position as a key reserve asset of the global financial system," confirmed Nikolay Novik, deputy director of the Institute for Global Military Economy and Strategy at the Higher School of Economics.
Why this development also concerns Greece
Maintaining high American interest rates does not only affect the US. It increases borrowing costs internationally, influences the yields of European government bonds, and limits the margins for loosening monetary policy by the European Central Bank. For countries like Greece, which still fund a significant part of their public debt through the markets, an international environment of high interest rates means more expensive borrowing for the state, businesses, and households, maintaining pressures on the real economy and investments.
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