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How the dollar has withstood the gigantic public debt and US budget deficit for decades

There are more and more new figures for increasing the national debt and the US budget deficit. This creates certain problems for US President Donald Trump. However, even with indicators that would have ruined other countries long ago, the US financial system remains successful and attractive. Why the dollar is still floating, business newspaper explains "Sight".

Фото: Depositphotos

A few days before the end of the next fiscal year (September 30), the US Treasury Department reported that for the 11 months the national budget deficit grew by 19%. As a result, it amounted to $ 1,067 trillion, or 4,4% of the country's GDP. The last time a public debt exceeded a trillion dollars in 2012, under President Barack Obama.

The US government debt continues to grow. If at the end of the 2017 year, the first presidential year of Trump, it was equal to $ 19,362 trillion, then by mid-February, 2019 of the year exceeded $ 22 trillion (105% of GDP), updating another historical record.

The widening budget deficit has already worried Trump. In October 2018, he demanded that the presidential administration reduce costs of all federal departments and departments by 5%. “Get rid of fat, get rid of waste!” Trump demanded, but a year later the deficit reached a record high during his presidency.

Although theoretically, even a five percent reduction implied very serious amounts of 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 Department of State and the Agency for International Development (USAID) immediately by 23% to $ 41,6 billion.

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American analysts believe that all these are cosmetic measures. They attribute the growing US budget deficit to tax cuts totaling $ 1,5 trillion, which Trump carried out immediately after coming to power. By 2028, the deficit could reach $ 2 trillion dollars.

In Russia, every new round figure associated with a budget deficit or US government debt invariably raises the argument that the American financial system is about to collapse along with the dollar as the world's main currency. However, until now, these forecasts remain in a purely theoretical plane - the dollar, of course, is slightly inferior to other currencies, but it does not far give them the palm. Moreover, now the dollar is in a phase of serious strengthening against most other currencies, including the euro.

“For the US, budget deficits have become normal since the late 1970's. With the exception of a short span of Clinton’s presidency, the US budget was in short supply throughout this period. A trillion dollars is just a figure, a psychological mark. Moreover, you need to remember 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. Such a conclusion, he said, flows from the sectoral balance sheet accounting formula: the sum of budget flows, foreign trade and the private sector is always zero. The United States has long had a deficit budget and a deficit foreign trade balance - therefore, the private sector is in the black.

The very formulation of the issue of US default looks strange, given that the United States itself issues dollars in which their obligations are nominated, notes American political scientist Alexei Chernyaev. He recalls that so far Congress has always raised the US government debt limit, and the colossal volumes of emissions and debt growth have not had corresponding negative consequences for both the US and global economies.

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

Great Britain during the struggle with Napoleon had fantastic public debt indicators - about 470% of GDP, and this did not lead to a financial collapse at all. Thanks to the role of world hegemon, Britain could attract borrowed money from all over Europe, and France waged a war on taxes and indemnities. In a sense, the outcome of this struggle was already predetermined at the level of political economy. But if the US position as a hegemon (in particular, in the role of the creator of the world reserve currency) is lost, then American finances will collapse. And this will be precisely the result of the loss of hegemonic position, and not the cause.

“The dollar is only the external contour and 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 the framework 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 US collapse, but the result of another transformation of the global 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.

Anxious Agenda for Trump

However, for the US domestic market, budget deficits are creating ever greater problems in a slowing economy. Last year, US GDP grew by 2,9%, in the first quarter of this year, growth was already 3,1% in annual terms, but in the context of a deepening trade war with China, this may be the limit that the US economy is capable of. According to the June forecast of the Federal Reserve System (FRS), this year the country's GDP will grow by 2,1%, and next year by 2%. This is approximately half that of the 1990's.

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“Trump is a supporter of a conservative market approach to economic policy. As president, he immediately reduced taxes, based on the notion that tax cuts lead to increased economic activity, ”commented Khazbi Budunov. - However, economic policy should not be reduced to simply giving money to the private sector. And the launch of economic growth through public investment, which would increase the well-being of the poorest segments of American society, is hampered by a US budget deficit. The desired level of growth of the American economy has not been achieved, and now Trump is trying to look for a scapegoat - for example, it requires through the Twitter from the Fed to reduce rates to zero. 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 indefinite strike of General Motors employees, announced by the United Automobile Workers Union starting midnight on September 16. According to the latest data, about 50 of thousands of workers at the company's 31 factory in the USA did not go to work. The strike with demands for a higher salary, affordable and quality healthcare and job security has already been recognized as the largest since 2007, when 73 thousands of GM workers participated in the protest.

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

According to Khazbi Budunov, the current situation in the US economy requires the adoption of a "green new course" program, which will contribute to the growth of wealth through investment. Now, in anticipation of the 2020 presidential election of the year, a discussion has begun among the center-left politicians of the United States about the sources of these investments. State Senator Vermont Bernie Sanders, who back in February announced his readiness to run for election, advocates for resolving the issue of money shortage in the spirit of modern monetary theory (MMT) - through the issue mechanism or, simply put, printing money. This doctrine, contrary to the orthodox notions of the nature of inflation, argues that increasing the money supply not only does not lead to inflation, but also helps to smooth out economic imbalances.

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A different view is held by Massachusetts Senator Elizabeth Warren, who offers a more traditional solution - to increase the withdrawal of money from the rich for further more even redistribution.

The topic of the budget deficit may indeed come up during the upcoming presidential campaign, says 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 party's libertarian wing - and nothing significant happens.

“The demands of libertarians to stop building up US public debt are virtually ignored. Therefore, the main trend is unchanged: the US public debt is growing according to any authority, and Trump has not turned the tide in this regard, despite the expectations, ”the expert summarizes.

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