United States government debt exceeded $ 26 trillion - the first time in the history of observations. Such data are provided by the US Treasury Department.
From January to early June, the figure increased by almost $ 3 trillion, although previously the debt of the US government grew by no more than $ 1.5 trillion per year.
At the same time, by the end of 2020, the value may additionally grow and exceed the mark of $ 30 trillion. This was in an interview with RT, a leading Forex Optimum analyst Ivan Kapustyansky.
Experts explain the sharp increase in the debt burden by the growing spending of the American authorities on eliminating the consequences of the COVID-19 pandemic. To date, the United States remains the leader in the number of coronavirus infected. At the same time, quarantine restrictions introduced in early spring provoked a massive reduction in trade and passenger traffic, as well as the closure of enterprises.
“To combat the crisis, the American leadership resorted to unprecedented fiscal stimulus measures. The volume of state support has already exceeded $ 3 trillion, and now another package of measures of a similar scale is being agreed upon, ”said Oksana Kholodenko, leading expert on international markets at BCS Broker, in a conversation with RT.
According to the US National Bureau of Economic Research, as a result of the outbreak of coronavirus in February 2020, the United States officially began a recession. Thus, the longest period in the history of the growth of the American economy ended, which lasted ten and a half years.
According to the Bureau of Economic Analysis, US Department of Commerce, in the first quarter of 2020, the country's GDP fell by 5% in annual terms. Moreover, as the situation with coronavirus worsens already in the second quarter, US GDP risks falling by 48.5% in annual terms. The corresponding calculations were made by specialists of the Federal Reserve Bank of Atlanta.
A significant economic downturn and the forced shutdown of a number of small and large enterprises caused a wave of layoffs. According to the US Department of Labor, over the past 12 weeks, the number of new applications for unemployment benefits in the country has grown by more than 43 million. The value began to increase sharply since mid-March, and the weekly growth rate of the indicator was the highest for the entire time of observation.
“Since many enterprises were forced to stop their work, thousands of Americans lost their earnings, and this increased the debt burden on the population. As a result, US government debt growth will continue to increase, ”said Yuri Mazur, head of CEX.IO Broker data analysis department, in an interview with RT.
According to analysts, government support measures for the economy should mitigate the effects of COVID-19 on the country's population and business. At the same time, an increase in cash spending risks turning into a massive increase in the country's budget deficit. In fiscal year 2020 (ending September 30), US treasury spending may exceed $ 3.7 trillion in revenue. Such calculations were made in the budgetary office of the US Congress.
“In general, since the beginning of fiscal 2020, the US budget deficit has grown almost threefold. To finance costs in such conditions, the most affordable and familiar way is to increase borrowing, which led to such a rapid increase in public debt, ”said Mark Goikhman, TeleTrade chief analyst, in an interview with RT.
Vicious circle
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.
“Now the public debt is creating real gigantic pressure on the economy, diverting resources to its services and current repayments. These payments for such an increased debt also fall on budget expenditures, creating a largely vicious circle of the need for further borrowing. At the same time, the debt burden per se restrains the economic recovery, ”added Goichmann.
According to the latest data from the US Treasury, in March 2020, the total amount of US debt about 28% ($ 6.8 trillion) fell on treasury bonds purchased by foreigners.
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Moreover, to reduce the negative effects of the epidemic on the economy in late March, the US Federal Reserve announced an unprecedented expansion of the quantitative easing program. The regulator began to print dollars and in an unlimited amount independently buy Treasuries in the stock market. In the spring, the volume of treasury bonds on the Fed's balance sheet increased from $ 4.2 trillion to $ 7.1 trillion.
“In fact, it turns out that the United States is selling its public debt to itself,” Ivan Kapustyansky explained.
The Fed’s policy of issuing new dollars and redeeming government bonds should lead to an increase in the money supply in the economy and help increase GDP growth. At the same time, the actions of the Federal Reserve may result in a sharp acceleration of inflation and a weakening dollar in the long run.
“An unlimited quantitative easing program is an obvious negative factor for the dollar. Other things being equal, the more dollar liquidity in the financial system, the less the US currency will cost, ”concluded Oksana Kholodenko.