What is a national debt of the USA? To what consequences will it lead? And what does it mean for other countries. Read more!
Is it true that the USA is going to become a bankrupt? And what will be next?
The total amount of debt the US economy grew in the first quarter of this year to $ 645 billion. Now it makes up $ 64.1 trillion, according to the data of the Federal Reserve System (FRS) the USA. This amount, in addition to the outstanding loans of the federal government in January passed the mark of $ 19 trillion, also includes the debts of corporations and loans of individuals.
However, the injection of new loans to the economy is less and less. According to statistics from the Federal Reserve Bank of St. Louis, US GDP grew in January-March 2016 total to $ 65 billion, reaching $ 18.23 trillion. That is, for every dollar of new debt accounted for only 10 cents of new GDP. So does it mean that America going bankrupt? And when the US be bankrupt?
America continues to live beyond its means.
Total US debt has reached 352% of GDP. This figure rose higher only a few months before the global financial crisis in 2008 and amounted to 380% of GDP.
Investors who buy in huge amounts US Treasuries take a great risk. It is difficult to hope that future tax revenues of America will be able to guarantee payments on the growing like a snowball debt, while such income is not enough even to maintain the current level of government spending.
For comparison: in Russia, despite the sharp decline in oil prices, the ratio of external debt to GDP does not exceed 11% today. As Prime Minister Dmitry Medvedev reported on Thursday, June 9 at a government meeting, the national debt was reduced by almost 350 billion rubles and its volume is 10.5 trillion rubles. The prime minister expressed confidence that the country's available resources will be enough to ensure fiscal stability.
The problem of continuously growing US public debt is looming on the horizon for a long time and does not have any fundamental solutions. In the foreseeable future we can hardly expect changes in the scheme of supporting the American economy by money inflow due to quantitative mitigations and foreign loans - a problem of unsecured debt by GDP in this case only be worse and the US is going bankrupt.
Last attempt to stop the growth of US government debt was undertaken in the 1990s. Administration of Bill Clinton even managed to achieve a budget surplus by adopting a series of unpopular measures, such as raising taxes. However, two subsequent president - George W. Bush and Barack Obama - not simply reduced the efforts of his predecessor to naught, but also brought the size of the public debt to dangerous proportions. The money was needed for costly military operations - in Afghanistan, Iraq, Libya and Syria.
In addition to an aggressive foreign policy, and the other problem of the United States, requiring a huge debt, there are excessive social obligations. However, neither Democrats nor Republicans try to cut these costs to prevent being US bankrupt.
Meanwhile, a former economic adviser to the White House, Todd Buchholz considers the excessive growth of leverage as one of the factors that may lead to the collapse of the United States, along with the drop in the birth rate and the globalization of trade. A former head of the Bank of England Mervyn King considers it possible to cancel the US debt to China, the largest holder of US foreign debt "in the case of a terrible coincidence."
It is possible build a large number of development scenarios in the case of a default of US according to the foreign debt, but one can say with certainty - this event will cause great damage not only to the holders of US securities, but also for all actors of the world economy.
Vice President of IFC Financial Center Stanislaw Werner believes that the collapse of the US public finances is inevitable. "We are now seeing signs that the situation becomes unmanageable pace of economic growth, which would reduce the debt burden, low inflation remains subdued, which does not allow to burn the accumulation of debt," - he explained.
According to Werner, this situation has led to the appearance of "separatist" sentiments in the states of Alaska and Texas. "Their beneficial financial situation and particular historical inclusion in the Union states require rejection of the idea of paying for themself and for the whole country, when a catastrophe happens," - he said.
Nevertheless, the expert believes that the US is unlikely to fall apart, but the social instability will increase, which confirms the popularity of presidential candidate Donald Trump - the electorate is tired of the elite, the policy which led to the growth of social inequality.
For the United States lenders risks remain elevated, and they are well aware, Werner said.
Predictions about the proximity of the collapse of one or the other country are published periodically, he recalled. Theoretically, of course, any country could fall apart -. The eternal state does not exist, however, people should not rush to believe each of such forecast, especially with regard to a fairly monolithic country like the United States.
It is not even a forecast and warning of the presence of risks that can be realized under the most pessimistic (and unlikely) case scenario.
The growth of the US debt is not a problem either for themselves States or countries - holders of debt. In fact, the probability of default of the United States is negligible and can be caused by a failure of the Senate to raise the" top "of debt, which has never happened, except for the conflict in 2011, when the decision to raise the upper limit of up to $ 16.4 TLN was made at the last moment, but it is in no way undermined neither the highest credit rating of the US, nor the status of Treasuries as the main protection of the investment instrument.
Therefore, to avoid default, the United States is sufficient to raise again and again the "upper limit". The fact that the debt is denominated in dollars, also excludes default at least as long as all international settlements will not cease to be made in this currency, and it, despite the efforts of countries such as China, still has not happened and is unlikely to happen in the foreseeable future.
The apocalyptic predictions about the destruction of the world economy under the weight of US government debt, of course, have the right to exist, especially after the events of 2008-2009., When the US economy influenced on the markets of the most developed and developing countries. But the realization of such a scenario will be likely prevented by other interested countries.
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