the u.s. economy still faces huge debt problems
2024-10-02
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on august 21, traders worked on the trading floor of the new york stock exchange. photo by xinhua news agency reporter liu yanan
on september 18, local time, the federal reserve launched its first interest rate cut since march 2020, marking a shift in its monetary policy from a tightening cycle to an easing cycle. however, the u.s. economy still faces huge debt problems.
since the 1980s, the size of u.s. debt has risen sharply. in 1990, the total u.s. government debt was approximately us$3.2 trillion. in 2000, this number increased to approximately us$5.62 trillion. in 2010, it increased to approximately us$13.56 trillion. in 2020, it increased to approximately us$27.74 trillion. in 2023, the us government total debt exceeded $34 trillion. as of july 2024, u.s. government debt exceeded $35 trillion, setting a new high again. although the federal reserve's interest rate cuts can alleviate some of the debt repayment pressure, the expansion of u.s. debt may be difficult to control and will become a shadow hanging over the global economy.
the monthly federal government revenue and expenditure report released by the u.s. treasury department on september 12 showed that this year the u.s. government has paid more than $1 trillion in interest on $35.3 trillion in national debt. the rise in debt servicing costs also coincides with a sharp increase in the u.s. fiscal deficit in august. in the first 11 fiscal months ending in august, the u.s. federal deficit reached $1.9 trillion, a year-on-year increase of 24%. the u.s. fiscal deficit reached a peak of $3.13 trillion in fiscal year 2020. although it showed a downward trend in the following two years, it increased again in fiscal year 2023: u.s. treasury data shows that the u.s. government’s fiscal deficit increased in fiscal year 2023. about us$320 billion, a year-on-year increase of 23%. on the one hand, the economic recession and the implementation of various tax reduction bills have led to a decrease in fiscal revenue; on the other hand, in order to stimulate economic growth, fiscal expenditures have continued to increase, which has led to rising fiscal deficits. the only way to make up for the fiscal deficit is through bond issuance. a vicious cycle is formed.
changes in debt directly reflect the level of fiscal profits and losses, and government fiscal profits and losses are often closely linked to economic growth. from the perspective of changes in the development of the u.s. economy, economic growth has been at a low level when debt has increased significantly in the past. the most typical one is that due to the impact of the 2008 international financial crisis and the covid-19 epidemic, the u.s. economy experienced negative growth, and u.s. government debt also increased significantly during the same period. .
according to the budget constraint theory, if the economic growth rate is higher than the debt interest rate, economic growth can absorb the debt growth. even if the absolute amount of debt increases, the negative impact of debt growth on the economy can be offset by expanding the scale of the economy, causing the relative amount of debt to decrease. but even under normal circumstances, the u.s. economic growth rate is only about 2%. however, the u.s. government debt interest rate has been around 5% for a long time, and the economic growth rate is obviously difficult to absorb the debt growth. what's more, u.s. economic growth statistics include capital appreciation in non-production areas such as finance, and cannot fully reflect the actual level of material production.
the united states' large-scale deficit finance relies on using the international currency status of the u.s. dollar to implement u.s. dollar hegemony. after the 1980s, the united states and the west promoted u.s.-centered globalization, forming an international cycle of the u.s. debt economy. the united states takes advantage of the status of the u.s. dollar to continuously issue u.s. dollars to purchase goods and resources from other countries and regions around the world, resulting in a huge trade deficit. the foreign exchange reserves formed by surplus countries after harvesting u.s. dollars cannot be used domestically and are deposited in u.s. banks or heavily invested in u.s. debt and other financial products, causing u.s. dollars to flow back to the united states. since 2010, the public debt of the united states has accounted for more than 60% of its gross domestic product (gdp) and has continued to rise. however, the united states has not experienced a debt crisis, and the level of national debt interest rates has not increased significantly. the main reason is that based on the dollar the international cycle of the us debt economy formed by its status. in addition, there is currently no better investment product that can replace u.s. debt in the world's financial markets. all these enable the u.s. deficit fiscal policy to be maintained by issuing new debt to repay old debt.
finance is an important means for the united states to transfer its debt burden. for example, interest rates and exchange rates can be used to appreciate or depreciate the u.s. dollar in order to transfer the debt burden and accelerate the return of u.s. dollars. since the outbreak of the new coronavirus, the federal reserve has launched quantitative easing monetary policy to stimulate the economy, leading to high inflation. since then, in order to curb inflation, the federal reserve has implemented a policy of raising interest rates on the u.s. dollar many times, pushing up the value of the u.s. dollar, causing the currencies of other countries, especially developing countries, to depreciate significantly, increasing the debt repayment costs of these countries, and making their u.s. dollars less valuable. assets returned to the united states in large quantities. the federal reserve's monetary policy of raising interest rates has been implemented for more than four years, helping the united states restore economic balance and alleviate inflationary pressure. now, the federal reserve has cut interest rates for the first time in more than four years. the subsequent depreciation of the u.s. dollar will not only bring imported inflation to other countries, but also shrink their u.s. dollar reserves and u.s. debt assets.
the deeper reason for the continued expansion of u.s. debt lies in the u.s. party system. the two parties put their own political self-interest above the national interest. in order to fight for their own interests, they overextended the future economic potential, adopted irresponsible fiscal policies, continuously raised the debt ceiling, and drank poison to quench thirst. this truly reflects the current political decline and governance failure of the united states. state of decadence.
in short, the huge debt problem in the united states is the result of the superposition of multiple factors, which exposes deep-seated problems in the u.s. economic and political system. the use of debt accumulation to promote economic development has resulted in the continuous accumulation and growth of debt; the global financial hegemony centered on the us dollar has contributed to the further expansion of us debt in the world; the political party system under the us decentralized checks and balances system has caused endless political difficulties. it helps reduce the debt burden, but increases the risk of debt default.
(source of this article: economic daily author: luan wenlian the author is a specially invited researcher at the world socialism research center of the chinese academy of social sciences and a researcher at the institute of marxism)
source: economic daily
