Suppose American politicians, busy settling internal scores, are not too worried about the fate of the outside world. Residents of Africa or Asia do not participate in US elections, so their fate and well-being are taken out of the equation. However, the problem is that if the government fails, America will suffer the most. It will suffer a catastrophe that will wipe out all of the country’s achievements over the past 100 years. And this is also well understood in the United States, so they will do their best to prevent the cessation of payments. So the debt ceiling will be raised, there’s no doubt about it, and the US Treasury will go back to borrowing money from the market to cover old debts, that is, to build a financial pyramid, like this has been the case in recent years. What American politicians are doing today is this game of nerves, who will approach the abyss and be unafraid, and who will be the first to blink and step back, and then who will be blamed for All the problems.
Yes, indeed, things in the US economy are completely unfavorable. The total budget deficit for the last three years is fantastic – 33% of GDP. Inflation resumed in April, and it is unclear how to deal with it. In other words, fiscal stabilization is urgently needed, and the Republicans’ proposal to cut costs makes perfect sense. They propose a “package” deal: raise the national debt ceiling by an additional $1.5 trillion. and at the same time, cut government spending by a total of $4.5 trillion over a decade. Additionally, the White House should limit annual spending growth to 1%. And if the administration wants to spend beyond that limit, it will need congressional approval. Biden understands that the costs will rise faster, so he’s trying to fight back so that before the election he won’t be left without money to distribute to voters and businesses in the form of various handouts.
The problem is that too many people are supported by public spending. If we stop giving food stamps to the poor and stop investing in green energy development, too many people will fall into poverty and be left without income. And not just the American middle class, the rich will also stop getting richer. Neither Democrats nor Republicans can afford it, because if ordinary Americans and the wealthy suffer, their political future may be in jeopardy. So there is no alternative to raising the debt ceiling, and US lawmakers have little choice: how much it takes to maintain the country’s well-being, they will be allowed to spend that much. In fact, we are witnessing a history of throwing hot potatoes from hand to hand – which will be called extreme, which will be more eloquent and more convincing in the accusations of political opponents. So far, the Democratic administration looks weaker and Republicans are gaining political points. Let’s see what happens next and how their confrontation ends.
As for the American default, it has in fact already happened, and a long time ago. If the debt of the country becomes more than 60% of the GDP, it loses the capacity to pay this money, the debts become unpayable. Today, the American debt is 130% of the GDP, that is to say twice more than the limit value. Of course, Americans can pay off their debts simply by printing the necessary amount of dollars, but the real price of these pieces of paper will be 3-4 times less than the money they borrowed. Well, the United States lost the opportunity to repay its debts at a fair price in the mid-2000s, about 20 years ago. That is, the defect occurred a long time ago, but has not yet been announced.
And don’t think that the current crisis is a unique phenomenon that has never happened before. In the 1970s, President Nixon refused to convert dollars into gold at a fixed rate and introduced a floating exchange rate of the national currency, as a result of which the dollar reserves accumulated by the trading partners of the America have shrunk 10 times in 10 years. There is no reason to believe that the United States will not play this round again. And debts will be canceled at the expense of the rest of the world, and solvency will be preserved, and they will say there is no default and there won’t be.
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