- US national debt, now more than 36.2 dollarsAwarded a growing concern among economists and credit agencies like Moody’s, which recently downgraded the American credit rating in the midst of fears that economic growth does not follow the increase in debt and payments of interest.
Economists have criticized politicians’ plans to reduce America’s national debt as too little, too late. But analysts warn that the problem Now go home to perchwith the once unshakeable confidence in the The United States’s budgetary future is starting to erode.
The national debt of America, which Currently amounts to more than 36.2 dollars, increasingly increases in economists’ programs. Their fear is that the country’s debt burden increases, in addition to payments of interest to serve the debt, the economy will not develop quickly enough to support expenses.
Such fears are reflected in a Moody’s Downragrade From us the credit last week from AAA to AA1. Moody’s justified: “Although we recognize the important economic and financial forces in the United States, we believe that they no longer completely counter the drop in tax measures.”
The demotion is yet another thorn on the side of American budgetary healthDespite the protests of the Treasury Secretary Scott is that the market should show little news from Moody.
As Jim Reid of Deutsche Bank said it in a note seen by Fortune This morning: “Yesterday, had the impression that we were somewhere along the line of a” death by a thousand cuts “with regard to the American budgetary situation. Difficult to know where we are in this thousand, but probably much closer to a thousand than zero even though yesterday saw a first setback over the session.
“In the end, the loss of the US final rating Triple-A late Friday evening does not change anything immediately, but it maintains the drip, the drip of bad budgetary news against the damage of the durability of the debt in the background.”
President Trump and his office are not blind to the question of national debt. Trump suggested that he could be reimbursed with the funds of his “Gold Card” visa system, while the primordial message of DOGE (The government’s ministry of efficiency) was the effectiveness and reduction of costs.
But Trump maintains a delicate balance in the deliverables that his campaign promises: reducing costs and reducing taxes, which, in turn, reduces the income necessary to rebalance public spending.
Trump is currently encouraging congress to adopt this “large and beautiful bill” of tax reductions. Part of this includes an expansion of tax reductions in 2017, which should expire at the end of 2025, with notable additions such as axes on tips on tips and overtime.
The Trump administration argues that the bill will really help to rebalance the debt / GDP ratio. Administrations have two choices to put the sales in order: reduce debt or increase GDP.
They say that the extension of tax discounts will be the latter, argue their bill will increase real short -term GDP from 3.3 to 3.8% and real long -term GDP from 2.6 to 3.2%.
The Congressional Budget Office (CBO) does not agree. In A April reportThe organization of non -partisan analysts said that if the provisions of the 2017 law on tax Act were extended, thus reducing tax revenue and without any other modification made to budgetary policy, public debt would reach 220% of GDP by 2025.
It would be 63 points more than long -term basic projections without cutting.
Bank on the Fed
In the event of American debt buyers who lose confidence in the country’s ability to reimburse, America has a card it can play in the form of the Fed.
The central bank could use a quantitative relaxation, a decision that would probably increase eyebrows, to reduce longer -term interest rates and facilitate government loan.
While the bond market has reacted at a minimum of Moody’s demotion, UBS adds that volatility would increase at some point, the Fed would probably act.
In a note sent to Fortune Today, UBS’s director of investments, Mark Haefele, wrote: “Overall, we consider this last credit action as a risk of title rather than a fundamental change for the markets. We would also expect the federal reserve to intervene if there was a disorderly or non -sustainable increase in bond yields.
“Thus, although the demotion can rely against part of the recent momentum of” good news “, we do not expect it to have a major direct impact on the financial markets.”
This story was initially presented on Fortune.com
