The United States economy continues to expand at a pace that has confounded many forecasters, posting a quarterly growth rate of 3.2 percent. This figure, released by the Bureau of Economic Analysis, represents a second consecutive quarter of robust expansion, further diminishing the likelihood of an imminent recession. Yet British economists, including those at the Institute for Fiscal Studies and the London School of Economics, are cautioning that this growth is built on a foundation of escalating public and private debt, a model they describe as unsustainable.
The US federal debt has surged past $34 trillion, with annual deficits now exceeding $1.5 trillion. Consumer credit has also reached record levels, with total household debt standing at $17.5 trillion. According to Professor Sir Charles Bean, a former Bank of England deputy governor, the current trajectory is reminiscent of the years preceding the 2008 financial crisis. “Debt-fueled growth is not growth at all,” he told the Financial Times. “It is borrowing from the future, and the bill will come due.”
The strength of the US economy has been driven by strong consumer spending, underpinned by a tight labour market and rising wages. Unemployment remains below 4 percent, and job creation continues to exceed expectations. The services sector, in particular, has shown resilience, with the Institute for Supply Management’s index remaining in expansionary territory for 15 consecutive months. The Biden administration’s industrial policy, including the Inflation Reduction Act and the CHIPS Act, has also spurred investment in manufacturing and green energy.
However, British analysts point to structural weaknesses. The savings rate has fallen to 3.4 percent, the lowest since the pandemic, as households deplete their savings to maintain consumption. Meanwhile, the Federal Reserve’s aggressive interest rate hikes, designed to combat inflation, have increased the cost of servicing debt. The Fed’s benchmark rate now sits at 5.5 percent, the highest in 23 years. This has led to a slowdown in the housing market and higher credit card defaults.
Geopolitical risks also loom. The ongoing conflict in Ukraine and the escalation in the Middle East have contributed to volatility in energy prices. A prolonged disruption to oil supplies could trigger a stagflationary shock, similar to the 1970s. The International Monetary Fund has warned that global growth remains fragile and uneven, with high levels of debt in advanced economies constraining policy options.
The fundamental question facing policymakers in both Washington and London is whether the US can sustain its growth trajectory without triggering a debt crisis. The Congressional Budget Office projects that by 2028, annual interest payments on the federal debt will exceed $1 trillion, surpassing spending on defence. This fiscal trajectory, the CBO notes, is “unsustainable over the long term.” The Bank of England, in its most recent financial stability report, similarly highlighted the vulnerability of highly leveraged households and businesses to a downturn.
The divergence between US and British economic performance has been a source of debate. The UK has struggled with lower growth, higher inflation, and stagnant productivity. Some attribute this to Brexit, others to structural differences in labour markets and investment. Yet British economists argue that the US model of debt-dependent growth is not a solution. “The US is enjoying a sugar rush,” said Lord Skidelsky, a biographer of John Maynard Keynes. “The hangover will come.”
In the near term, the US economy may continue to defy gravity. But the longer the expansion relies on ever-increasing leverage, the more severe the eventual adjustment is likely to be. The warning from British economists is clear: what appears to be a strength today could become the crisis of tomorrow.
