US President Joe Biden and Speaker of the House of Representatives of the US Congress Kevin McCarthy, after another round of negotiations, reached an agreement on the ceiling of the national debt of the United States. This was announced during a press conference by the head of the White House.

"We have reached a bipartisan agreement on the budget, which we are ready to send to Congress. I think this is a very important step forward, and it removes the threat of a catastrophic default from the agenda, and also protects our hard-won economic recovery. The agreement was a compromise, which means that neither side received everything it originally wanted, "Biden said.

According to him, the deal will be "good news for the American people" because it will prevent the worst possible crisis. In this regard, the American president called on congressmen to approve the treaty in the House of Representatives and in the Senate, where the document will be submitted for approval.

As the White House later explained, in fact, the approved document implies the suspension of the national debt ceiling until January 1, 2025. At the same time, the first annual budget cuts in more than a decade are planned, with the exception of spending on defense and medical benefits for veterans, as stated in a joint statement by Republican congressmen Kevin McCarthy, Stephen Scalis, Tom Emmer and Alice Stefanik.

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Recall that at the beginning of 2023, the US national debt slightly exceeded the maximum allowable mark of $31.4 trillion. As a result, the government began to run out of money to fulfill its obligations - and the country's Ministry of Finance announced emergency measures. In particular, it was decided to temporarily abandon some budget expenditures in order to delay the default and give Congress time to discuss a new debt ceiling.

Initially, the Ministry of Finance calculated that the resource of all measures taken could be completely exhausted by June 1. Later, the agency shifted the date of the alleged default to June 5.

Negotiations on changing the national debt ceiling in the United States have been going on for several months. At the same time, against the backdrop of a long lack of compromise, Joe Biden was even forced to cancel planned trips to Australia and Papua New Guinea to continue discussing the deal. As the American president noted earlier, refusing to raise the debt limit and, as a result, declaring a default could turn into a disaster for the US economy.

"Our economy would plunge into a severe recession, retirement accounts would be empty, and borrowing costs would rise. According to Moody's, almost 8 million Americans would lose their jobs, and our reputation in the world would be severely undermined, "Biden warned.

Back in April, Republicans proposed raising the national debt ceiling by $1.5 trillion, but in return demanded a sharp reduction in budget spending by $4.8 trillion over the next ten years. At the same time, the Democrats, led by Joe Biden, considered such a proposal "unviable" and until recently insisted on raising the limit without any additional conditions.

"In the end, the parties compromised, since no one wanted to take responsibility for declaring a default. This would be absolutely unacceptable from a political point of view for the United States and would lead to chaos in the global financial system. Now Congress needs to support the initiative by a majority of votes, since they simply have no other way. However, I think all scenarios are still possible, "said Sergey Suverov, investment strategist at Aricapital Management Company, in an interview with RT.

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It is noteworthy that a number of congressmen from the Republican Party have already announced plans to boycott the agreement proposed by Biden and McCarthy. If passed, the U.S. national debt is expected to increase by another $4 trillion over the next year and a half. Against this background, for example, Republican members of the House of Representatives Chip Roy and Andrew Clyde called for "keeping the line of defense." At the same time, their fellow party member Matt Rosendale called the deal a "law of financial irresponsibility", the approval of which would be "an insult to the American people." A similar point of view was expressed by Congressman Dan Bishop.

McCarthy called the deal a "big win," saying the Democrats got "nothing" out of the talks that they wanted... In addition to increasing debt by another $ 4 trillion ... and a complete lack of responsibility for it in the 2024 election season," Bishop wrote on Twitter.

"Looks like a snowball"

The U.S. national debt represents the total debt owed by the federal government to creditors. Washington borrows money to pay for all the necessary expenses that can no longer be covered with budget revenues.

To do this, the country's authorities mainly use special treasury bonds (treasuries). American and foreign investors buy securities issued by the US Treasury and receive a stable income on them, essentially lending their money to the US economy. These funds are used to pay off the budget deficit.

According to the Federal Reserve Bank of St. Louis, the spending of the American treasury has consistently exceeded the amount of cash receipts over the past 20 years. During the same time, the country's public debt has increased fivefold, today its volume is about 120% of GDP.

Back in 1917, the US authorities first introduced the so-called debt ceiling. We are talking about an artificial restriction, which was originally created to protect the country from excessive growth of borrowing.

At the same time, against the backdrop of constantly growing budget expenditures, the country's leadership periodically has to either raise the limit or completely abandon its use. According to Congress, since World War II, the United States has changed the debt ceiling 102 times. Moreover, the discussion of this issue is usually accompanied by heated debates, and delaying the process each time pushes the country to default, experts say.

Recall that default means the borrower's refusal to fulfill his monetary obligations. As a rule, this is due to the debtor's lack of financial capabilities.

Throughout history, the United States has faced this situation at least five times. The last case occurred in 1979, when the authorities could not agree on raising the debt ceiling in a timely manner. In the end, the limit was raised, but the US Treasury did not have time to repay obligations in excess of $ 120 million on time.

More than 30 years later, in 2011, the United States was again on the verge of default due to disagreements over the debt ceiling. Although as a result, the government still managed to pay off creditors on time, the international agency S&P for the first time downgraded the US credit rating from the highest level - AAA - to AA+.

"Formally, the United States is already in default. In reality, they do not receive as much income as they need for their own existence and development. This problem is solved at the expense of the printing press and the paradigm that they created after the Second World War, when the whole world actually finances the American economy ... (Raising the debt ceiling. - RT) has the form of a huge snowball rolling down the mountain, which is constantly increasing. One day there will come a time when it will no longer be possible to negotiate - and the whole world will understand this. Then the countries will cease to fill this ball and it will simply explode, "Anatoly Aksakov, head of the State Duma Committee on Financial Markets, suggested in an interview with RT.

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At the same time, the deputy does not rule out that even in the face of continuing contradictions among congressmen, this time the United States will still be able to avoid default. A similar point of view was expressed in an interview with RT by BitRiver financial analyst Vladislav Antonov.

"If the initiative fails to agree and there is a default, we should expect consequences not only for the US economy, but also for many other countries, since the dollar is still the main reserve currency and central banks keep their funds in it. At the same time, a further increase in public debt is also a negative factor for the American economy, which will undermine confidence in the dollar. After all, debt servicing is becoming more and more expensive, which puts a serious burden on the country's budget," Antonov added.

Interest Rate Trap

It should be noted that the pressure on the US budget has already increased markedly recently against the backdrop of the changed policy of the US Federal Reserve System (performs the functions of the country's Central Bank). In 2022, after the introduction of energy sanctions against Russia, fuel prices rose sharply in the United States, and inflation accelerated to a maximum in the last 40 years. To combat price increases, the Fed began to sharply tighten monetary policy (monetary policy). So, in just over a year, the American regulator has already raised its interest rate ten times and brought it to 5-5.25% - the highest level in almost 16 years.

Traditionally, tightening monetary policy is considered one of the main tools in the fight against inflation. As a result of rising rates, the cost of loans for citizens and businesses is rising, economic activity is weakening, which puts pressure on prices. At the same time, due to the actions of the Fed, the cost of servicing the US national debt also increases.

According to the Congressional Budget Office, in 2022, Washington's spending on interest payments on public debt increased by 35% and amounted to $475 billion, equivalent to 1.9% of US GDP. Moreover, according to the agency's forecast, in 2023 the amount will increase by another third - up to $640 billion (2.4% of GDP). In the future, the amount will only grow and eventually become the largest item of budget expenditures, according to the American Peter Peterson Foundation.

"In the next 30 years, interest payments will amount to about $ 74 trillion, and by 2053 they will go to almost 40% of all federal budget revenues. Interest costs... in 2029, they will exceed the amount of defense spending, in 2044 - on Medicare (health insurance program for the elderly population. - RT), and in 2050 - on social insurance, "the organization calculated.

In addition, as noted in the fund, a further increase in interest costs will lead to a reduction in public investment, which could ensure economic growth in the future. So, by 2053, the US authorities will direct almost three times more money to debt service than they ever spent on education, the development of non-defense infrastructure, research and development, combined, the fund added.

This state of affairs carries great risks, State Duma Chairman Vyacheslav Volodin is sure. In this regard, according to him, more and more states are beginning to gradually abandon the dollar and switch to settlements in national currencies.

"The dollar is becoming toxic. All pyramid schemes, as history shows, sooner or later end in failure. But here the situation is special. The US national debt is a global financial pyramid built by Washington to deceive other peoples and countries. It is right for states dependent on the dollar to look for an alternative to it today, thereby reducing the risks for their citizens," Volodin wrote in his Telegram channel.