Credit Spiral: US government debt reaches $ 24 trillion for the first time

The national debt of the United States reached $ 24.1 trillion, the highest level in the history of observations. Such data are provided by the US Treasury Department.

From January to April, the figure rose almost $ 1 trillion. Moreover, by the end of 2020, the value may exceed $ 25 trillion. This point of view in an interview with RT was expressed by the head of the Alpari information-analytical center Alexander Razuvaev. Experts attribute the sharp increase in the debt burden to the deterioration of US economic indicators against the backdrop of the COVID-19 pandemic.

According to official data from the World Health Organization (WHO), the total number of people infected in the world exceeded 1.47 million, of which more than 87 thousand died. Moreover, the largest number of infected people was registered in the USA - 425.9 thousand.

The global spread of the disease and the quarantine measures introduced by states provoked a massive reduction in trade and passenger traffic. Against this background, the International Monetary Fund has already announced the beginning of a recession in the global economy.

According to the Congressional Budget Office, in the second quarter, US GDP in annual terms may decrease by more than 28% compared to the same period in 2019. At the same time, unemployment can grow up to 10%. As EXANTE managing partner Alexei Kiriyenko explained to RT, since the beginning of spring, the worsening situation with the coronavirus has led to the forced stoppage of a number of small and large enterprises, which caused a wave of layoffs.

According to estimates by the US Department of Labor, over the past three weeks, the number of applications for unemployment benefits in the country has reached a record 16.8 million. According to analysts, the observed value is comparable to that of the Great Depression. At the same time, the current state of affairs risks turning into a large-scale increase in the country's budget deficit.

“As a result of this situation, the state budget revenues have noticeably decreased. So, even before the coronavirus epidemic, Washington was counting on budget revenues of $ 3.5 trillion in 2020. However, according to recent estimates, the corresponding amount will be only $ 2.5 trillion, ”Kiriyenko explained.

Along with the loss of budget revenues, the States are increasing the cost of eliminating the consequences of coronavirus. So, in late March, Donald Trump signed a law on financial assistance to the economy in the amount of $ 2 trillion.

“The stimulus spending that the US government is launching now increases the budget deficit planned for this fiscal year by about $ 1 trillion. Such a situation will only accelerate the growth of public debt, ”Alexander Razuvaev explained.

According to the forecast of the international rating agency Moody's, in 2020 the negative difference between the income and expenses of the US treasury will increase from 4.6% to 15% of GDP. According to the Federal Reserve Bank of St. Louis, this is the largest figure since 1945.

Note that to cover the budget deficit, the US Treasury Department issues special treasury bonds (treasuries). American and foreign investors buy securities and receive a steady income on them, essentially lending their money to the American economy. These funds are used to pay off the budget deficit, but in the long run, the growth of public debt only increases the burden on the country's budget.

“The recession that threatens the United States now can lead to a number of grave consequences. We are talking not only about rising unemployment, but also accelerating inflation, which in the end will significantly affect the standard of living of ordinary citizens. Due to the decrease in budget revenues, the state will have nothing to pay social benefits to the population, ”added Alexey Kirienko.

According to the expert, to reduce the negative effects of the epidemic on the economy at the end of March, the US Federal Reserve announced an unprecedented expansion of the quantitative easing program. The regulator began to print dollars and buy bonds in the stock market in an unlimited volume.

Such a policy should lead to an increase in the money supply in the economy and help increase GDP growth rates. At the same time, the Fed’s measures run the risk of weakening the dollar in the long run.

Endless loans

It is curious that, in addition to public debt, the debt of the population, companies and financial organizations also continues to increase in the USA. As calculated at the American Institute of International Finance (IIF), the total debt burden is about 327% of GDP and remains one of the largest in the world. At present, the highest values ​​today are also observed in Europe and Japan - 391% and 548% of GDP, respectively.

“Even before the pandemic, developed countries were actively borrowing. Such a policy made it possible to spend money without much thought on the development of various enterprises. But now, due to the virus, industrial production has declined by more than a third, some of the plants are worth it. As a result, enterprises do not make a profit, and the volume of loans remains the same. As a result, governments faced a difficult choice: to support the production of money or to allow their bankruptcy. Both scenarios run the risk of exacerbating the financial crisis, ”Alexei Korenev, an analyst with Finam Group, told RT.

As noted by Alexei Kiriyenko, the rapid growth of public debt may violate the financial stability of the country. Over time, this situation risks turning into an outflow of creditors.

“The inability of the United States to reduce its debt burden risks leading to a situation where the government indefinitely takes loans to pay off already taken obligations. If investors begin to doubt the solvency of the United States, the government will have much less opportunity to attract new money if necessary, ”Kiriyenko added.