US national debt breaks record / News / News agency Inforos
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US national debt breaks record

The US Treasury Department has embarked upon extraordinary measures over reaching the debt ceiling

US national debt breaks record

Earlier last week, US Treasury Secretary Janet Yellen announced the country's having reached the statutory debt limit, which requires emergency measures. A letter has already been sent to the US Congress, with the minister urging lawmakers to take some action as soon as possible.

Earlier, Ms. Yellen warned that if the financial limit is not increased by October 1, when the new fiscal year begins in the United States, Joe Biden's administration may face major issues. This may primarily concern the government's ability to pay off debts on its obligations, as this very period will witness considerable budget expenses.

Experts suppose that the current US debt issues are an outright legacy of the 2007-2008 severe economic downturn. Since then, the country has had to raise the debt ceiling several times, with political battles having consistently flared up in Congress between the Democrats and the Republicans. The latter, by the way, have already stated that they won't support raising the debt ceiling if President Biden and the Democrats take issue with cutting back on spending, or other national debt relief measures.

It bears reminding that in 2019, the US Congress suspended the borrowing limit, or debt ceiling, until July 31, 2021 and fixed it at the level of $22 trillion. Currently, the limit has been hit and amounts to nearly $28.5 trillion, which is the jumbo size of US government obligations relative to the country's GDP since records began in the 1950s.

The US national debt indicator took off last year, when the authorities spent a lot to combat the COVID-19 pandemic and its aftermath. In case of a further debt burden increase, the United States risks facing a default, which will jeopardize the jobs and savings of ordinary Americans. By the way, the history of America has never witnessed a default. Financial analysts warn that a potential default could trigger a global financial crisis, given that most of the world's trade is premised on the US dollar. As a result, default may primarily happen in countries with their economies all tied up in the US dollar.

It should be noted that in the profile of the US national debt, about a third are state securities purchased by insurance companies and pension funds. Another third was acquired by investment companies and banks. The remaining volume is held by other countries. For the time being, Japan and China are the largest holders of US Treasury obligations.

Russia has been annually reducing investment in the US national debt since 2014 amid economic sanctions: while in 2010-2013 Russian investments exceeded $170 billion, today they only account for some $7 billion. This fact holds out a hope of facing the lowest direct effects of American state loans' negative revaluation, with Russia being little impaired by US national debt troubles. Moreover, the Russian National Wealth Fund (NWF) has generally got rid of dollar balances, except for gold with its prices fixed in dollars.

The point to be emphasized here is that the American debt increase has become a routine. In this regard, pundits expect Joe Biden's administration to address this issue in the old-fashioned way: sooner or later, the Congress will still raise the ceiling, even despite republican resistance – it will simply be forced to. Otherwise, the work of US government agencies will be stymied, which neither the Democrats nor the Republicans desire. Everyone is aware that a default will suspend the placement of new federal and local bonds to finance budget expenditures, and the country may well face a management crisis.

An inter-party compromise is believed to provide for a dramatic review of the US debt ceiling, raising it immediately to $33-35 trillion. As such, each of the parties will get its own back. Republicans will exchange passage of the bill for curtailed ambitions of the Democrats who control both chambers of Congress. In turn, the Democrats, once slightly shortening their infrastructure and "green" initiatives, will be able to avoid a protracted exhausting confrontation with the Republicans and will swiftly stimulate GDP growth.

Due to this precise reason failure to raise the debt ceiling will be equivalent to shooting your own leg, even both legs at once, which is comparable to suicide. Besides, the United States cannot allow a default on its really astronomical national debt, if only because it is no longer about economy, but about prestige and prospects for America's existence as a state.

In conclusion, we shall make a short digression, which, however, is directly connected with the US national debt. Americans have long been living in debt, that's not a big deal anymore. Indeed, living on credit in America is an easy and pleasant thing. Especially if we talk about the whole nation. This began over 200 years ago with the country's first Secretary of the Treasury Alexander Hamilton, who is depicted on a 10-dollar bill; his monument is in front of the US Treasury building. Many consider Hamilton a man of genius. And he suggested as much as one thing: how to strike it rich being as poor as a church mouse, in defiance of all the rules and business rationale. In late XVIII century, there was no trace of America's initial capital.

And then Hamilton said something like "What's the big deal? Let's borrow from someone and start ALWAYS living on credit!". And so, with borrowed money, the Americans erected their first buildings. Later those buildings were put in pawn, and aggressive construction continued. This came through a contagion effect at an exponential rate. They built and put in pawn, and so on ad infinitum... The United States has built "everything" over the two centuries and keep doing so for the time being, making nothing of how much and whom they have borrowed from...

The only question is how long will this beautiful life on credit last?

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