Debt bomb “leader” temporarily removed trillions of “new debt” caused worries that the root cause of the disease has not been cured, and the U.S. debt crisis continues (global hotspots)
The Overseas Edition of the People’s Daily reported that the US has just “passed” the debt ceiling crisis, and the US is planning a new round of borrowing. According to recent US media reports, the US Treasury Department will issue 850 billion US dollars of national debt within 4 months. JPMorgan Chase estimates that by the end of this year, the U.S. government will need to borrow $1.1 trillion in short-term debt. Some investors worry that this will trigger a new round of turmoil in the US financial market.
Experts pointed out that the debt ceiling bill passed by the United States a few days ago cannot fundamentally solve the debt ceiling crisis. As the U.S. debt “snowball” gets bigger and bigger, the U.S. financial system will continue to be under pressure, and the U.S. economy and the reputation of the U.S. dollar will also be further impacted.
New deep-seated risks highlighted
Recently, U.S. President Biden signed a bill on the federal government’s debt ceiling and budget. The bill suspends the debt ceiling until early 2025 and places spending limits in fiscal years 2024 and 2025. This is the 103rd time the US has adjusted its debt ceiling since the end of World War II.
The “fuse” of the US debt bomb has been temporarily removed, and the next round of actions by the US government has attracted the attention of the outside world.
According to Bloomberg, the U.S. Treasury’s cash reserves have fallen to 2015 lows during the current debt ceiling crisis. The Treasury Department hopes to bring the general account back to normal levels of about $600 billion by September. Some investors believe that this means that the Ministry of Finance will issue a large number of bonds to enrich its own “coffers.”
According to data from JP Morgan Chase, the US government may issue 850 billion US dollars of national debt in the next 4 months. By the end of this year, the U.S. government will need to borrow $1.1 trillion in short-term debt. Industry insiders pointed out that apart from the “major crisis moments” in 2008 and 2020, “this will be the largest in the history of US Treasury bond issuance.”
“The current risk of U.S. debt default is temporarily lifted, but new deep-seated risks are gradually emerging.” Bian Yongzu, a visiting scholar at Yale University in the United States, pointed out in an interview with our reporter that the current U.S. monetary policy tends to be tightened, and the Federal Reserve has raised interest rates several times to curb it. Inflation, which will cause some resistance to the issuance of U.S. debt, the interest rate of U.S. debt will rise, and the U.S. government will face huge pressure on interest payments, and the debt pressure has not decreased. At the same time, since the Federal Reserve raised interest rates aggressively, a number of small and medium-sized banks have been “explosively” closed, and people’s awareness of investment stability has increased. If the U.S. Treasury Department issues bonds at high interest rates, the liquidity of the capital market will be further tightened, and the U.S. economic recovery will continue to grow. Facing new challenges. In addition, in the context of the current difficult recovery of the global economy, once the United States issues treasury bonds on a large scale, it will have a “siphon effect” on the funds of other countries and have an impact on the economies of other countries.
“The Wall Street Journal” quoted analysts as saying that money market funds may become the largest financing party of this round of bond issuance. The risk is that for money funds to invest in Treasuries, they need to yield at least 5 percent, which means the U.S. government may have to borrow at rates closer to 6 percent. Bloomberg analyzed that the surge in issuance of treasury bonds may quickly drain the liquidity of the banking industry, raise short-term financing rates, and tighten the U.S. economy when it is on the verge of recession.
In addition, the debt ceiling and the budget bill will limit spending in fiscal years 2024 and 2025, which also caused market concerns. Michael Feroli, an economist at JP Morgan Chase, believes that under the expectation of economic recession, fiscal policy is often more supportive of economic growth. The bill leads to a reduction in fiscal spending, which may have a greater impact on the US economy and employment.
“Irresponsible” “Eat more than enough food”
“After the passage of the debt ceiling bill, the debt risk will only be postponed rather than disappear. The US government is accustomed to ‘eating more than it needs’. The scale of debt will accumulate and the risks in the future will also increase.” Bian Yongzu said.
The federal budget deficit is projected at $1.5 trillion in 2023 alone and will nearly double to $2.7 trillion in 2033, according to the Congressional Budget Office. It is estimated that the U.S. budget deficit will reach $20.2 trillion over the next 10 years. In addition, the cost of repaying US national debt has also increased significantly. Interest payments alone will cost about $10.5 trillion over the next 10 years. Compared to the size of the U.S. economy, interest payments are projected to rise from 2.4% of GDP in fiscal year 2023 to 3.6% in fiscal year 2033.
“Debt interest and non-interest deficits are both increasing, and the debt problem has become a lingering shadow of the U.S. government.” Luo Zhenxing, director of the Economics Office of the Institute of American Studies, Chinese Academy of Social Sciences, analyzed to this reporter that the U.S. debt ceiling crisis occurs frequently. There are three main reasons. One reason: First, the United States has increased spending and implemented tax cut policies on a large scale over the years, resulting in an imbalance in revenue and expenditure, and the fiscal deficit has increased year by year, leading to debt accumulation; second, since the international financial crisis in 2008, the United States has experienced unfavorable economic growth and low economic growth. The third is that the United States has encountered several major economic crises, such as the 2008 financial crisis and the economic recession caused by the new crown epidemic in 2020. The US government has increased its financial assistance, resulting in an increase in government spending. The scale of debt expanded rapidly.
Bian Yongzu believes that the continuous growth of the US debt scale is determined by the US national economic structure. “As a highly financialized economy in the United States, the financial industry occupies an important proportion in the economic system. In order to cope with the high-intensity operation of the financial system, the United States has implemented quantitative easing policies for a long time and maintained an investment environment with low interest rates. Governments, enterprises and individuals The scale of borrowing is quite large. In this economic structure, the U.S. government will maintain a large amount of debt for a long time to ensure the continued profitability of the financial industry.”
When the U.S. Government Accountability Office released its annual “National Fiscal Health Report” in May, it made it clear that the federal government is facing an unsustainable fiscal outlook. If the policy is not adjusted, the scale of debt will continue to accumulate faster than the economic growth rate, and the risk of the debt ceiling will continue to plague the United States.
At the same time, partisanship over the debt ceiling has intensified, turning the debt issue into a “political game” between the two parties. “Temporary delay” rather than “complete resolution” has become the way the United States responds.
“The Economist” commented that although the debt ceiling bill passed this time is called the “Fiscal Responsibility Act”, it does not substantially touch the root cause of US fiscal “irresponsibility”. The next partisan drama over the debt ceiling is almost certain to unfold when it comes back into effect in early 2025.
A commentary on the US “Market Watch” website bluntly stated that as the debt ceiling has turned from a trivial matter of maintaining government operations into a “political football”, the crisis that has just been resolved will reappear sooner or later, and it will be more difficult to handle at that time.
The “terrible system” of “debt addiction”
The international rating agency Fitch recently stated that although the United States passed the debt ceiling bill, considering the full impact of the recent political impasse in the United States and the medium-term fiscal and debt trends, the credit rating of the United States will still be maintained in the “negative watch” status.
Martin Wolf, the chief economic commentator of the British “Financial Times”, pointed out that the absurd farce created by the two parties in the United States has been repeatedly staged, which has seriously damaged the credibility of the United States and has also greatly increased the possibility of the collapse of the financial system.
Luo Zhenxing pointed out that as the scale of U.S. debt continues to increase and its proportion in GDP continues to increase, the outside world will pay more attention to key issues such as whether the U.S. can repay the debt, how to repay the debt, and whether the cost of borrowing will become higher and higher. It has a certain negative impact on investors’ confidence in using US dollars and holding US dollar assets.
Bian Yongzu also believes that the unlimited issuance of bonds by the United States will push up the economic and financial risks it faces. At the same time, the accumulation of debt will also lead to a decline in the credibility of the U.S. government and the U.S. dollar, which will eventually erode the hegemony of the United States.
The website of the Lebanese “Plaza” TV station recently pointed out that the chaotic debt ceiling crisis in the United States has cast a shadow on the so-called “risk-free” status of US national debt, exposing the vulnerability of the US dollar as a reserve currency. According to the US Consumer News and Business Channel, statistics from the International Monetary Fund show that the US dollar’s share of global official gold and foreign exchange reserves has dropped from 70% in 1999 to 58% in the fourth quarter of 2022.
Hidetoshi Tashiro, chief economist of Unlimited Contracts Japan, believes that the root of the U.S. debt problem lies in the hegemony of the U.S. dollar. As long as the U.S. borrows U.S. dollars from foreign countries, it can directly repay foreign debts by printing a large number of U.S. dollars and dilute the foreign debt burden. Horrible system of borrowing, debt addiction.” He also pointed out that using the debt ceiling as a partisan tool would have a nasty effect on the economy. In the short term, it will cause severe fluctuations in exchange rates and stock prices; in the long run, it will shake the world‘s confidence in U.S. debt. Once a large number of holders choose to sell, the price of U.S. bonds is bound to plummet.
“For a long time, the United States has regarded the hegemony of the dollar as its core interest, and has tried every means to maintain it. Whenever it encounters an economic crisis, the United States always tries its best to transfer risks to other countries to maintain the status of the dollar. However, with the development of the global economy, especially the development of The influence of China and emerging economies is increasing, the cost of transferring risks and crises to the United States is also increasing, and the difficulty for the United States to maintain its financial hegemony by relying on original means is also increasing. In the long run, the influence of the US dollar will further decline .” Bian Yongzu said.