US National Debt Crisis Is a ‘Boiling Frog’ in the Trillions, Warns JPMorgan

The US national debt is like a “boiling frog,” a slow but certain threat to economic stability, according to analysts at JPMorgan.

A boiling frog is a situation where “people fail to act on a potential problem that grows over time, causing it to become more severe until it eventually bubbles over.” It’s a classic cautionary tale that might have been told a bit too late. Imagine a frog in a pot of water; if the water temperature rises slowly, the frog doesn’t realize the mortal danger until it’s too late. This metaphor is a fitting description of America’s current debt scenario.

The national debt reached a new high of $34 trillion this month, following the decision to raise the U.S. debt ceiling last year to prevent a default. This level of debt is alarming, especially as it’s predicted to keep escalating. The Congressional Budget Office paints a daunting picture, estimating that by the early 2030s, the country’s obligatory spending and debt interest payments will surpass total government revenue.

JPMorgan strategist Michael Cembalest raises a critical point. Each round of fiscal stimulus gets the U.S. closer to a point of debt unsustainability. Despite the ravaging effects on the economy, the deteriorating fiscal condition seems to have minimal immediate consequences for investors, leading to general desensitization. But Cembalest warns that this trend might not continue indefinitely.

With an already problematic starting point and a growing need for more resources, the U.S. is slowly but surely marching toward an unsustainable debt crisis. The expectation is that market and rating agency pressures will eventually force the U.S. government to implement substantial changes, possibly in the form of new wealth taxes.

However, it doesn’t look like the U.S. has plans to curtail its discretionary spending, a significant contributor to the escalating debt. Although the issue has been a bone of contention among lawmakers for months, Congress is yet to approve a budget for the fiscal year, indicating a potential impasse when it comes to trimming spending.