Weekly Economic Report 8.28.26
This week the total US federal debt passed $40 trillion, and as always at significant round numbers there was a lot of media attention. Is the US borrowing to much – if not now, in the future? Debt held by the public (a mere $32 trillion) is roughly equal to US GDP, but will rise sharply as the baby boom ages and their medical care becomes more costly. However, that is the future. Debt is rising faster now because the federal government is borrowing on behalf of the US business sector – and that translates more specifically into the AI boom. Not all debt is bad. Borrowing to buy a car is different than borrowing to buy a pizza. The government’s investment in AI promises a productivity gain from more efficient use of scarce resources -- which should produce higher future taxes to repay the debt. This borrowing is also related to the defense budget, as the US is not the only nation with heavy federal subsidies supporting investment in AI.
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