The United States, which once used its economic power to intimidate the world, now appears to be caught in a major crisis itself. For the first time, America’s public debt has become larger than its entire economy.
By the end of March, the United States’ debt had reached about $31.27 trillion, while its GDP was $31.22 trillion. In other words, the U.S. is now in debt for more than it earns.
Now the concern is not just the debt, but the kind of threat that could shake the very foundations of America. Trust from Gulf countries in the United States has begun to weaken. After the increasing attacks by the U.S. and Israel on Iran, Gulf countries are reconsidering their investments.
Gulf countries have invested nearly $2 trillion in the United States. This includes U.S. bonds, the stock market, real estate, and even weapons.
An Economic Upheaval Could Erupt
The United States cannot stop any foreign country from withdrawing its money. That is its biggest constraint. The strength of the American market is that anyone can invest and withdraw money at any time, but now this very openness has become a risk.
Experts fear that if Gulf countries start selling large-scale U.S. assets, it could cause a sharp decline in the stock and bond markets. A crisis similar to the 2008 recession could emerge. Markets would crash, debt would increase, and an economic shock would be felt across the world.
The U.S. Has Made a New Move to Protect the Dollar
To protect itself from this risk, the United States is now relying on swap lines. Under this system, the U.S. Federal Reserve provides dollars to other countries so they are not forced to sell their U.S. assets.
The same approach was also used during the 2008 recession. In reality, this entire system was based on the petrodollar arrangement. After the agreement between the United States and Saudi Arabia in 1974, the world’s oil began to be traded in dollars.
Gulf countries earned dollars by selling oil and then invested that money back in the United States. In return, the U.S. provided them security.
Now the Petrodollar System is Beginning to Break Down
This same system now appears to be breaking apart. Pressure from Iran, threats to oil facilities, and rising tensions in the Strait of Hormuz have made Gulf countries more cautious. This is why the United Arab Emirates left OPEC on May 1.
Gulf countries now want more control over their oil, earnings, and investments. The biggest concern is that they are also signaling an increase in oil trade in China’s currency, the yuan. If that happens, the world could gradually start becoming less dependent on the dollar.
