2023-05-30 13:04
Source: Xinhua News Agency
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Beijing, 29 May (Xinhua) -- There is such a "credit card," which can rely on its privileges to overdraft indefinitely, and can constantly raise the "credit limit" so that creditors can continue to pay.
This "credit card" is the US debt system, the "cardholder" is the US government, the "credit line" is the debt ceiling, and that privilege is the hegemony of the dollar. Over the past 20 years, this "credit card" has been frequently maxed out, touching the debt ceiling, and continuing to pose cumulative risks to the global economic and financial system.
Comic book production: Ma Zegang
On the evening of the 28th local time, US President Biden said that the final agreement reached between the Democratic Party and the Republican Party on raising the debt ceiling is being submitted to Congress. This move eased global market sentiment slightly, but it did not help resolve the US debt crisis accumulated over the years. According to the U.S. Department of the Treasury, the current federal debt in the United States is about $31.47 trillion, which is equivalent to $94,000 in debt per American.
Stemming from hegemony, abuse of bad government, chaos out of control - as an external symptom of the US debt crisis, the farce of debt ceiling politics has been repeatedly staged in Washington, showing the world how the bad combination of dollar hegemony and American party rivalry can create a crisis and spread the world.
Why do alarms keep sounding?
On January 19 this year, the US federal government hit a statutory debt ceiling of $31.4 trillion. Treasury officials noted that while a federal debt default was temporarily avoided by taking "extraordinary measures," the White House could be left without money in early June.
The so-called "debt ceiling" is the maximum amount of debt set by the US Congress for the federal government to meet the payment obligations that have been incurred, and touching this "red line" means that the US Treasury has exhausted its borrowing authorization, and the White House has no right to continue borrowing unless otherwise authorized by Congress.
On May 22, at the White House in Washington, D.C., Speaker of the House of Representatives, Republican Kevin McCarthy, answered reporters' questions after negotiating with US President Joe Biden on the debt ceiling issue. (Xinhua News Agency, photo by Aaron)
For decades, the alarm that the US debt has peaked has been sounding. According to statistics from relevant departments of the US Congress, since the end of World War II, the US Congress has approved 102 adjustments to the debt ceiling. Since 2001 alone, there have been as many as 20 such adjustments. This is often accompanied by chaos such as fierce party strife, market turmoil, and government shutdowns.
"The root cause of the US debt alarm is the hegemony of the dollar, which brings many dilemmas." Australian economist Guo Shengxiang told reporters, "The US debt crisis is one of the external manifestations of the US dollar hegemony against the US economy. ”
Since the United States announced the decoupling of the dollar from gold in 1971, the collateral for the issuance of the dollar has changed from gold to US sovereign credit. In other words, the dollar became a currency without collateral, and the external constraints on its issuance were removed, and the "Pandora's box" of US debt expansion was opened.
As the world's number one payment currency and reserve currency, the dollar's share of international reserves is still close to 60%, accounting for nearly 40% of international payments, and US Treasury bonds dominate the global bond market and are regarded as safe-haven assets.
Due to the hegemony of the dollar, dollar assets, including US Treasury bonds, are sought after by global traders and investors, allowing the United States to absorb US dollars back at a very low cost. The United States has also used unconventional monetary policies such as quantitative easing to lower the US dollar exchange rate and government bond yields, dilute investors' equity, and repeatedly harvest the wealth of other countries.
As former French President Charles de Gaulle lamented: "The United States, enjoying the super-privileges and tearless deficits created by the dollar, plunders the resources and factories of other peoples with worthless waste paper." ”
However, while the United States has gained huge benefits by relying on the hegemony of the dollar, it has also caused serious problems such as inflated trade deficit and imbalance in the balance of payments. In addition, the US government's increasing addiction to debt and private use of public instruments has sown the seeds of the US debt crisis.
This is US President Joe Biden photographed at the White House in Washington, USA, on May 17. (Xinhua News Agency, photo by Shen Ting)
Since the 80s of the 20th century, the US government has begun to borrow a lot. In 1985, the United States went from being a net creditor to a net debtor. Since 1990, the U.S. national debt has soared from $3.2 trillion to more than $31.4 trillion.
Driven by the impulse to seek huge profits with hegemony, the United States has maintained a foreign trade deficit for a long time, exported dollars and inflation, and promoted the return of dollars through a large number of bond issuances, forming a dollar cycle system of "debt monetization". As a result, the US fiscal deficit continued to expand, fiscal discipline was gradually abolished, and the US debt became a big trend.
High debt is accompanied by high deficits, with the Congressional Budget Office predicting that the U.S. government deficit rate will remain above 4.5% after 2025, the first similar situation in the United States since 1930. According to the US Moody's Analysts, by 2025 or 2026, the annual interest on the US national debt will exceed the military expenditure.
"The U.S. has become an ocean of debt," Jeffrey Gundlack, CEO of Two-Line Capital, noted worriedly, noting that as early as 2018, U.S. debt exceeded nominal gross domestic product (GDP) and that "without debt growth, the U.S. economy will be negative."
At present, the size of the US debt as a percentage of its GDP has exceeded 120%. Excluding seasonal factors, the latest data from the Federal Reserve Bank of St. Louis in the United States showed that the total US debt was 120.2% of GDP in the fourth quarter of 2022. According to data from the UK's Silas Data Information Ltd., as of December 2022, the US debt-to-nominal GDP ratio has reached 123.4%. In March 2021, this ratio reached an all-time high of 132.4%.
From the logic of market supply and demand, as long as someone is willing to take over, the feast of huge US debt will never be dispersed. However, if there is a lack of actual solvency, in the long run, the US indefinite expansion of debt and the use of new debt to pay off old debts are not fundamentally different from Ponzi schemes.
Why did the warning fail?
The government shut down for 35 days, and about 800,000 federal employees stopped paying their salaries; In Washington, D.C., garbage piled up as sanitation departments stopped working; Due to the closure of public toilets in the national park, tourists have to be convenient on the side of the road...
The above chaos, which occurred in the United States in late 2018 and early 2019, is directly caused by the fierce bipartisan quarrel between the two parties in the United States over the debt ceiling and other issues, and the inability to agree on an appropriation bill.
In August 2011, international rating agency Standard & Poor's historically downgraded the U.S. sovereign credit rating from the highest "AAA" to "AA+" with a negative outlook. This move shattered the myth of "zero risk" in US Treasury bonds, and S&P questioned and warned about the US solvency in the medium and long term.
Washington is not surprised by warnings about the debt ceiling. Since 1976, the United States has had about 20 government "shutdowns" of long or short due to the debt ceiling issue.
This is the Treasury Department building photographed on January 20 in Washington, D.C. (Photo by Xinhua News Agency reporter Liu Jie)
The "shutdown" of the federal government is the result of checks and balances in the executive and legislative branches of the United States. The executive branch's budget spending plan requires congressional approval, which in turn requires the president's signature to take effect. If this system design is used well, it can avoid "excessive expenditure", and if it is not used well, it will become a tool of "party struggle".
When all issues are seen bipartisan as bundled interests and bargaining chips, the debt ceiling issue inevitably becomes a tool for political manipulation.
After the 2022 US midterm elections, Republicans who control the House of Representatives and the Biden administration are at an impasse over raising the debt ceiling. Over the months, US President Joe Biden has repeatedly said that the House of Representatives should raise the debt ceiling unconditionally, but the Republican side has insisted that it will not raise the debt ceiling unless the Biden administration agrees to a massive reduction in the federal budget. The two sides have been fighting over this to this day.
Critics point to the ignorance of debt ceiling warnings as a result of inefficient U.S. electoral politics. John Parguta, a visiting professor at the Institute of Public Policy at Georgetown University in the United States, believes that the US debt problem is not a natural disaster but a man-made disaster, and the "shutdown" that disrupts the operation of the government is the result of "poor management".
In the past few decades, the US government has been accustomed to delaying the crisis by constantly pushing up the fiscal deficit and easing monetary policy during recessions; In better economic years, they are keen to spend more money on political performance in order to gain more votes, and are lazy to push for long-term structural reforms. This short-term approach to governance has raised debt to an unprecedented level, turning the debt problem into a political game of drumming.
For the US government, in order to fundamentally alleviate or even solve the debt problem, it must take a series of "scraping the bones and curing poison" measures: removing illegal trade and investment barriers and improving the balance of payments; curbing excessive financialization and boosting the real economy; détente geopolitical relations and reduce non-essential military spending; Reduce the use of extreme monetary policies and ease "debt monetization"; strengthening international policy coordination, etc.
However, these thankless and in-depth reforms will not help realize the short-term interests of politicians, and will inevitably be sniped by US financial, military and other interest groups.
In the endless pulling and fighting, the two parties have no hope of reaching a quality solution to the root cause, and the best result that the outside world can hope for is that the United States raises the debt ceiling again.
For whom are alarm bells ringing?
According to economists, there is a structural contradiction between achieving dollar hegemony and maintaining dollar credit.
In 1960, American economist Robert Triffin proposed in his book "Gold and the Dollar Crisis - The Future of Free Convertibility" that the core of the dollar as an international currency is to maintain a stable and strong currency value, which requires the United States to maintain a long-term trade surplus; However, international trade, investment, reserves and other activities require the US dollar to have a high degree of liquidity, which promotes a large number of US dollars to flow out of the United States, causing the United States to fall into a long-term trade deficit, which in turn endangers the stability and strength of the US dollar and weakens the US dollar's credit.
As Trifin predicted, the dollar was eventually decoupled from gold and the Bretton Woods system collapsed. However, because the hegemony of the US dollar has not ended, the contradiction between US dollar liquidity and US dollar credit has not been resolved, but has gone out of control in the form of the US debt crisis, becoming a "gray rhinoceros" that threatens global economic and financial security, sounding the alarm for the United States itself, the world economy and global investors.
This is the Capitol photographed on January 19 in Washington, the capital of the United States. (Xinhua News Agency, photo by Shen Ting)
From the perspective of the growth curve, the peak of the size of the US national debt in a certain period of time is often related to the involvement of the United States in a war or crisis at that time. Therefore, the US debt crisis is a symptom of out-of-control US governance and a bellwether of the US economy.
The U.S. trade deficit in goods and services surged 12.2% from the previous year to $948.1 billion in 2022, a record high, driven by a surge in imports, according to the U.S. Department of Commerce. In order to curb inflation, the Fed has continuously raised interest rates, which has caused a serious impact on the world economy. The "debt ceiling" crisis will not only significantly increase the difficulty of US economic governance, but also bring greater impact to the world economy.
Analysts believe that the US economic expansion model based on huge debts, in addition to leading to the federal government's debt ceiling crisis, is also closely related to many secondary crises such as the Fed's policy extremes, fiscal policy deficits, industrial hollowing, and household financial high leverage.
In view of the fact that the Fed's aggressive interest rate hikes in the early stage have significantly increased the debt burden of emerging economies, if the US debt crisis occurs repeatedly, it will inevitably lead to turmoil in the global financial market, and even induce a new round of global financial crisis, bringing greater trouble to the world economy.
This is the White House photographed in Washington, D.C., on January 20. (Photo by Xinhua News Agency reporter Liu Jie)
From self-granting credit, to continuous breach of trust, to increasing credit, the more the "credit card" in the hands of the United States is swiped, the larger the credit limit, and the longer the bill to be paid. According to the US Congressional Budget Office, the size of US debt as a percentage of GDP will be as high as 185% by 2052.
Although the two parties have reached an agreement on the debt ceiling now, the course of the current crisis is still uncertain until the dust settles, and the short-term remains a major risk to the security of the world economy. In the long run, Washington's political failure to resolve the huge debt of the United States is seriously damaging the credibility of the United States and will accelerate the decline of the dollar's hegemony.
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Curator: Ni Siyi
Executive Producer: Feng Junyang
Coordinator: Fu Yunwei, Yan Junyan
Comics: Ma Zegang
Reporter: Fu Yunwei Su Liang
Editors: Ouyang Wei, Xu Chao, Deng Qian, Yu Maofeng, Zhao Yue, Du Jing, Ma Zhan, Liu Xiang, Wang Jiansheng, Hua Yi, Chen and Tang De