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Trump risks the unique financial situation of the United States

Trump risks the unique financial situation of the United States

12.02.2018
Tags: Economy, USA, Trump, Analyst, Debts, Taxes

The American president is indignant - the US public debt, which has reached a fantastic figure of 20,5 trillion dollars, continues to grow. At the same time, Trump himself contributes to the US budget deficit, increasing defense spending and infrastructure. Due to what, despite the huge debts, the United States continues to prosper - although any other country in such a situation would have long ago gone bankrupt?

President of the United States Donald Trump proposed for the coming 10 years to cut the country's budget expenditures by 3 trillion dollars, reports the Washington Post. A request was sent to Congress. After the document is considered by the House of Representatives and the Senate, he will return to sign the head of the American state.

The government "spends more money than it earns," Trump is indignant. And approved on Friday the draft budget for the new fiscal year (will begin October 1) threatens the growth of the budget deficit. Recall that the Republicans and Democrats have agreed to further increase government spending by 300 billion dollars, most of which will receive the Pentagon.

Trump's desire to cut budget spending is in conflict with his plan to restore American infrastructure. From the federal budget it is proposed to allocate 200 billion dollars for the program on infrastructure modernization with the expectation that it will stimulate private business to invest in it 1,5 trillion. Another 23 billion is proposed for strengthening immigration control, of which 18 billion - for the construction of a wall on the border with Mexico. Plus 85,5 billion - for medical assistance to war veterans, 17 billion - to fight the spread of opioids.

As a result, the US budget deficit will continue to grow at double-digit rates. Back in 2017, it amounted to 666 billion dollars, and in 2019, according to the forecast, will reach 1,1 trillion. "These expenditures will provoke growth not in the entire American economy, but only in its separate segments - industrial and military. At the same time, against the background of the tax reform, there will be a decrease in revenues and, in my estimation, will lead to a deficit of the US budget for 2018 / 2019 a little less than 1 trillion dollars, "says Vadim Merkulov from IK" Freedom Finance ".

All this means one thing: the growth of the US budget deficit will have to be closed at the expense of the national debt, and in fact it is growing exponentially. Other ways of patching budgetary holes - increase the tax burden or cut costs. The first is impossible - Trump went, on the contrary, to reduce taxes for business. And to achieve reduction of expenses for 3 trillion dollars for 10 years will not be so easy.

Currently, the US debt reaches 20,5 trillion dollars, it is more than 105% of the country's GDP. For comparison: 10 years ago, at the beginning of the reign of Barack Obama, the debt was almost half less - 10,6 trillion. Obama did not hesitate to raise budgetary expenditures and the level of public debt, but Trump promised to cut the national debt in his election program.

"Republicans are in favor of increasing the limit of the national debt, Trump is now discussing with the democrats how to stop this practice. In this there is an unconditional conflict. How exactly it will be solved, is still unclear, "- says the first vice president of the" Russian Club of CFOs "Tamara Kasyanov.

One of the three US rating agencies Moody's in a Friday report said that the United States in the coming years will face pressure due to the swelling debt burden and an increase in the budget deficit. The recently agreed tax reform will only exacerbate this pressure. "The increase in spending on benefits and the increase in interest rates will lead to the fact that the US fiscal position will be further weakened over the next decades, unless measures are taken to reduce these costs or increase additional revenues," say Moody's analysts Sarah Carlson and Yves Lemey.

Moody's does not yet reduce the rating of the US, keeping it at the highest level of AAA, but clearly warns that it may follow the example of S & P in the future. This is the only rating agency of the big three, which reduced the rating of the US to AA + in August of 2011.

The United States has long been unable to live within its means, but it does not suffer from poverty, but lives at the expense of the countries that lend to them. "A large level of public debt does not prevent the country's economy from feeling confident and making a profit sufficient to maintain a high standard of living and servicing existing loans," Kasyanova said. Because the United States has unique capabilities that no other country in the world has. And they use this uniqueness to the full.

Moody's analysts also recognize the unique position of the US economy, which plays a leading role in the global financial system due to the dominance of the dollar. That is why the US with such a huge national debt can not only stay afloat, but also prosper, which no other country in the world can afford.

The US national debt is nominated in currency, which Washington controls. The US Federal Reserve can always include a printing press in order to redeem its debt obligations. At the same time, they can not be afraid of hyperinflation - dollars are easily distributed around the world, without exerting a negative influence on the American economy, because it is in dollars that most of the calculations in world trade go. Therefore, by the way, the plans of Russia or China to switch to settlements in rubles or yuan so irritate America - this is a direct attempt on its well-being.

However, the growing national debt - in any case, a time bomb. "The problem is serious, in theory it can lead to a limitation of the credit capacity of the United States. But the bubble is unlikely to burst, because

numerous creditors will not allow the global financial crisis, and it will certainly come if the default does occur,

- says Kasyanov. Secondly, the gold and foreign exchange reserves of Americans still make up a quarter of the world's stock, and this also reduces the risks of the collapse of the US financial system. "A more realistic scenario - the US economy growth in the medium term may slow down due to the need to repay the external debt," Kasyanova said.

However, if the US GDP can grow by 3% for 2018 year, then it will be safe to say that Trump's plan works. Due to the growth of tax revenues, the budget deficit to 2020 may turn into a surplus, Vadim Merkulov of the Investment Company "Freedom Finance" believes.

Thus, we can say that Trump risks - if his plan works, then the US will really start to get out of its huge debts. However, if the plan fails (new tax revenues will not cover the costs of the army and infrastructure), US debts will only grow, and this will increase the threat to US economic domination.

Olga Samofalova
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