U.S. Bubble Ready To Pop Due To Debt Addiction: Fortune

The "mother of all bubbles" is set to burst soon as U.S. outperformance has been driven by unsustainable levels of debt, warned Ruchir Sharma, chairman of Rockefeller International.

The U.S. remains resilient due to its status as the world's top economy and the holder of the global reserve currency.

Efforts to curb this debt addiction will eventually weaken economic growth and corporate profits, Jason Ma reported for Fortune.

In a recent column for the Financial Times, Sharma outlined how the bubble of U.S. economic dominance compared to the rest of the world is likely to collapse. He argued that the nation’s achievements are less remarkable when adjusted for government spending and the outsized influence of a few tech giants with massive valuations.

Sharma noted that "supernormal profits" typically revert to normal levels amid rising competition.

“Growth and profits are also being artificially boosted by the heaviest deficit spending ever recorded at this stage of an economic cycle, by far,” explained Sharma, author of What Went Wrong With Capitalism.

Public debt—borrowed funds owed to external lenders—is already at approximately 100% of GDP and is expected to surpass the all-time high reached after World War II.

Unlike the postwar era, this debt surge is occurring during robust economic conditions and without a global catastrophe.

The cost of servicing the debt has also skyrocketed, further exacerbating deficits. Annual interest expenses have reached $1 trillion, exceeding defense spending and ranking among the largest budgetary items.

However, U.S. households and businesses maintain strong balance sheets, which continue to fuel the economy.

“Every hero has a fatal flaw,” Sharma wrote. “America’s is its sharply increasing addiction to government debt.” He highlighted that $2 of new government debt is now required to generate just $1 of GDP growth—up 50% from five years ago.

While any other country facing similar dynamics would likely experience capital flight, the U.S. remains resilient due to its status as the world's top economy and the holder of the global reserve currency.