The U.S. can go bankrupt



While Republicans and Democrats are fighting over the passage of the budget, the United States may default.

It is obvious that the United States is living on debt, by printing dollars. And they are doing just fine. If they run out of money, they'll print new ones. They will borrow again.

But since the end of last year this system began to fail. You can't keep printing dollars forever. And so the United States recently reached the ceiling on its national debt. The domestic debt alone (these are domestic loans in the form of bonds) was $6.87 trillion, and the foreign debt - in bonds, $24.5 trillion.

And then a real war broke out between the Republican and Democrat parties over it.

What are the differences between the Republican and Democrat positions? The Republicans want to put limits on welfare payments by taking away social security and health insurance from the middle and lower classes. And the latter want to raise the national debt.

Let's take a closer look at Biden's budget, and then it will be clear what the battle between the rival parties is about.

This budget can safely be called social, it is "made up" in support of the poorest segments of society and the middle class.

So the Democrats want to restore the tax benefit for children, give increased subsidies under the Affordable Care Act, universal free pre-school education, a paid family and medical leave program, strengthen the free medical assistance program for the elderly, set a price ceiling on insulin. What a wonderful program! Real communism!

However, as they say, there is a little "but": where can we get the money for social welfare? The Democrats are going to do it at the expense of the rich: introduce a minimum tax for billionaires, 25 percent on all their incomes, and raise the maximum tax rate to 39.6 percent from the previous 27 percent. Besides these and other social bonuses, the budget also provides for an increase in military spending: a 3.2% increase in funding for the Defense Department and $6 billion for the allies in the war against Russia.

That is, the Democrats are offering to find money at the expense of the rich, which the Republicans, who represent the interests of big business, do not want to do. And then there is the ever-growing national debt, which has reached $31.4 trillion.

What is to be done in such a situation? After all, as long as the two parties, Republicans and Democrats, argue, the more the national debt grows.

Treasury Secretary Janet Yellen called for an increase in the national debt limit back in October 2022 so that the government could pay the bills. According to Democrats, the debt ceiling of 31.4 trillion, the United States has set itself and has the right to raise it. By the way, this has happened more than once. They did it 90 times last century! Under Barack Obama, the bar was raised five times, and the last increase by 2.5 trillion was approved by Joe Biden not so long ago - in December 2021.

So the way out is "simple and elegant," to give an example at the household level. Suppose you know that you can't borrow more than 100 rubles, but you need 200. And then what do you do? Right, with a flick of the hand you raise your debt limit. That is, you can now lend not 100, but 200 rubles.

The Republicans are resisting this in every way possible. But without new dollars, the U.S. economy might just grind to a halt, so new loans are needed. This is where the controversy begins. The Republicans, represented by Kevin McCarthy, speaker of the U.S. House of Representatives, are ready to increase the national debt limit, but only on condition of reducing funding for Ukraine, defense and social health insurance. President Biden, a Democrat, is vehemently opposed to any cuts. Meanwhile, the country itself is showing more and more signs of a recession that is hard to stop.

Some analysts draw simply apocalyptic pictures of the future. Knowing how the U.S. usually solves its problems at the expense of the whole world, they do not rule out that America will create a new currency, tied to the dollar, and will pay its debts in it, to some in equal proportions, to some - in less. That is, to close allies - in full, to strangers - in a reduced form. There is also the idea of issuing perpetual bonds, which are never redeemed and on which interest is only paid. There are also proposals which used to seem completely unrealistic, but after the freezing of Russia's foreign currency assets in the West and the funds of private individuals, this idea no longer seems fantastic.

Namely: to declare some countries, such as China, totalitarian, and under this pretext not to pay them at all. True, apart from China, there is another major holder of U.S. government debt - Japan, which has $1.08 trillion in U.S. bonds, while China has $870 billion worth of it. By the way, Russia got out of this lottery on time, leaving U.S. debt securities only for $2 billion.

And what can the United States do if their income is less than their expenditures? And at the same time Americans understand how important it is not to lose the reputation of a reliable borrower who pays his debts on time. Otherwise, to take an example from everyday life, if you borrow money from your friends and don't pay it back in time, it's obvious that no one will lend you more.

But it is too early to assume that America will go bankrupt and default anytime soon. Neither Republicans nor Democrats need that. And most likely, after fierce political battles, they will come to an agreement, but on what terms?

For example, the Republicans suggest an unconventional move - to count the national debt not in dollars, but as a percentage of GDP. And it is clear why. The GDP of the Americans is high, and the higher it is, the more probable it is to get new loans under it. Although the U.S. debt-to-GDP ratio has gone over 130 percent, when the safe level is 77 percent, but a number of countries, Japan, for example, is living at multiple times over that figure.

"Time X" is due in June of this year, and if the Democrats do not agree with the Republicans to raise the debt ceiling, then America will face a real default. And then nobody will want to buy American debt securities or use the dollar at all. Although all of this is a political game, each party is bargaining for the best deal, especially with the prospect of an upcoming 2024 U.S. election. And while part of the establishment is confident that there is nowhere to go and both parties will agree, Elon Musk believes that even if they manage to get out of it now, it is just a matter of time before the U.S. defaults