$ 22 trillion is the US national debt. What is the dollar holding on to?

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

A few days before the end of the next fiscal year (September 30), the US Treasury Department announced that the national budget deficit grew by 19% in 11 months. As a result, it amounted to 1.067 trillion dollars, or 4.4% of the country's GDP. The last time the size of the national debt exceeded a trillion dollars in 2012, under President Barack Obama.

The US national debt continues to grow. If at the end of 2017, Trump's first presidential year, it was equal to $ 19.362 trillion, then by the middle of this February it had already exceeded $ 22 trillion (105% of GDP), having updated another historical record.

The widening budget deficit was already causing concern for Trump. Last October, he demanded that the US cabinet cut the spending of all federal ministries and departments by 5%. Get rid of fat, get rid of waste! - Trump demanded, but a year later the deficit reached a record level during his presidency.

Although, in theory, even a 5% reduction implied very significant savings. For example, the military was ordered to approve a budget of $ 700 billion instead of $ 733 billion. A landmark proposal made by Trump in March was the reduction of the budget of the State Department and the Agency for International Development (USAID) by 23%, to $ 41.6 billion. …

American analysts believe these are all cosmetic measures. They link the growing US budget deficit with the $ 1.5 trillion tax cut that Trump implemented immediately after taking office. As the Wall Street Journal notes, citing analysts from the US Federal Budget Committee, by 2028, the deficit could reach $ 2 trillion.

In Russia, each new round figure associated with the budget deficit or the US national debt invariably prompts speculation that the American financial system is about to collapse along with the dollar as the main world currency. However, until now, these forecasts remain in a purely theoretical plane - the dollar, of course, is little by little inferior to other currencies, but far from giving them the palm. Moreover, the dollar is now in a phase of serious strengthening against most other currencies, including the euro.

“For the United States, budget deficits have become normal since the late 1970s. Except for a short span of Clinton's presidency, the US budget has been in deficit throughout that period. A trillion dollars is just a figure, a kind of psychological mark. Moreover, it should be remembered that 10 years ago, when the US budget deficit was at the same level, taxes in the US were higher, and the current deficit is largely the result of Trump's tax reform and signals that the US private sector has enough money,” - notes economist Khazbi Budunov, editor of the Telegram channel PolitEconomics. This conclusion, he said, stems from the accounting formula for the sectoral balance: the sum of the flows of the budget, foreign trade and the private sector is always zero. For a long time, the United States has been experiencing a deficit budget and a deficit foreign trade balance - therefore, the private sector turns out to be in the black.

The very formulation of the question of the US default looks strange, given that the US itself issues dollars in which its obligations are denominated, notes American political scientist Alexei Chernyaev. He recalls that until now Congress has always raised the US national debt limit, and the colossal volumes of emission and growth of debt did not have corresponding negative consequences for both the American and the global economy.

“The size of the national debt is a function of the country's position in the global system. And as long as the United States remains the hegemon in the world system, it, in essence, can afford any amount of public debt and budget deficits without visible consequences. For comparison, such somersaults would have already brought Russia to fatal consequences,”Chernyaev said, citing a historical analogy two hundred years ago.

During the struggle with Napoleon, Great Britain had fantastic indicators of public debt - about 470% of GDP, and this did not lead it to financial ruin at all. Thanks to its role as world hegemon, Britain was able to attract borrowed money from all over Europe, and France fought a war over taxes and indemnities. In a sense, the outcome of this struggle was already predetermined at the level of political economy. But if, the expert adds, the position of the United States as the hegemon (in particular, in the role of the creator of the world reserve currency) is lost, then the collapse of American finances will occur. And this will be precisely the consequence of the loss of the position of the hegemon, and not the reason.

“The dollar is only the outer contour and the tip of the iceberg of a complex financial system that is developing and transforming in order to reproduce existing socio-economic relations. It would be wrong to evaluate the dollar in terms of the classical national currency and the monetary system of old capitalism. The new system allows the dollar and the entire financial system not only to maintain stability, often contrary to "normal" economic logic, but also to ensure global hegemony. Which, of course, does not mean the inexhaustibility of this system,”adds Pavel Rodkin, Associate Professor at the Higher School of Economics.

According to him, the notorious collapse of the dollar will not be the cause of the collapse of the United States, but a consequence of the next transformation of the world financial system. However, at the moment, the expectations of the collapse of the dollar or the collapse of the American economy are not much different from the expectations of the explosion of the famous Yellowstone volcano in Wyoming, which is about to happen and then will certainly end America.

Troubled agenda for Trump

However, for the US domestic market, the budget deficit creates more and more problems in the context of a slowing economy. Last year, American GDP grew by 2.9%, in the first quarter of this year, the growth was already 3.1% in annual terms, but in the context of the deepening trade war with China, this may be the limit that the US economy is capable of. According to the June forecast of the FRS, this year the country's GDP will grow by 2.1%, and next - by 2%. This is roughly half of what it was in the 1990s. Trump's plans to restore America's economic greatness are clearly being stalled.

“Trump is a supporter of a conservative market approach to economic policy. After becoming president, he immediately lowered taxes, based on the idea that tax cuts lead to an increase in economic activity, - says Khazbi Budunov. “However, economic policy should not be limited to simply giving money to the private sector. And the launch of economic growth through public investment that would improve the well-being of the poorest segments of American society is hampered by the US budget deficit. The desired level of growth of the American economy has not been achieved, and now Trump is trying to find a scapegoat - for example, he is demanding a rate cut from the Fed to zero through Twitter. All this testifies to the inconsistency of reality with intentions, and Trump's ratings are falling."

From this point of view, a symptomatic event was the open-ended strike by General Motors workers announced by the United Auto Workers Union of the United States starting at midnight on September 16. According to the latest data, about 50 thousand workers did not go to work at 31 of the company's plants in the United States. The strike, demanding higher wages, affordable and quality health care and job security, has already been recognized as the largest since 2007, when 73,000 GM workers took part in the protest.

In other words, the notorious rednecks - Trump's nuclear electorate - are actively demonstrating dissatisfaction with the economic policy of the American president. The letter from the unions, in particular, says that GM has made a record $ 35 billion in profit in North America over the past three years.

According to Khazbi Budunov, the current situation in the American economy requires the adoption of a "Green New Deal" program, which will contribute to the growth of prosperity through investment. Now, on the eve of the 2020 presidential elections, among the center-left politicians in the United States, there is an intensified discussion about the sources of these investments. Senator from the State of Vermont Bernie Sanders, who in February announced his readiness to participate in the elections, advocates solving the problem of the shortage of money supply in the spirit of modern monetary theory (MMT) - through the emission mechanism or, simply put, the printing of money. This doctrine, contrary to orthodox ideas about the nature of inflation, asserts that an increase in the money supply not only does not lead to an increase in inflation, but also helps to smooth out economic imbalances.

Senator Elizabeth Warren from Massachusetts has a different point of view, proposing a more traditional solution - to increase the withdrawal of money from the rich for further more even redistribution.

The topic of the budget deficit can indeed be pedaled during the upcoming presidential campaign, notes Alexey Chernyaev, but it should be remembered that the Republicans themselves have been actively using this topic since at least 2010 under pressure from the libertarian wing of the party - and nothing significant is happening. “The demands of the libertarians to stop increasing the US national debt are virtually ignored. Therefore, the main trend is unchanged: the US national debt is growing at an increasing rate under any government - and Trump in this regard did not change the situation, despite the existing expectations,”the expert sums up.