In the first half of September, the House of Representatives of the US Congress, following the Senate, voted to raise the "debt ceiling", and President Trump, by his signature, gave this decision the force of law. World markets breathed a sigh of relief - the specter of a US government default has disappeared from the horizon. But he will be back soon, in three months. What kind of horror story is this - "debt ceiling"? Where did he come from? And why are battles unfolding around him, which are followed on the banks of the Moscow River as well as on the banks of the Potomac?
The dialectic of the absurd
In other words, the US government cannot make ends meet without borrowing money. It is obliged to make payments in accordance with budgetary laws previously passed by the US Congress; it must pay interest on debts; he must comply with the principal repayment schedule. (By the way, the US national debt recently topped $20 trillion—that's more than the country's annual GDP.) But the legislator hasn't given the government sufficient budgetary allocations for all this, and it has to borrow money. It would be possible to raise taxes to balance the balance, but this is hindered by ideological prejudices and the egoistic populism of legislators: the voter does not like it when the fiscal burden increases, they can ride in the elections... Such is the American dialectic.
Realizing its absurdity, in the late 70s, then-Democratic leader in the House of Representatives, Dick Gephardt, proposed that the "debt ceiling" be automatically raised to the required level as soon as the budget for the next fiscal year is approved. In 1979, the "Gephardt Rule" became law, but it only lasted until 1995, when Congress repealed it. Since then, every year in the fall (the federal fiscal year begins on October 1), there has been a budget leapfrog: legislators bargain with the party leadership, win others over to their side, blackmail, give in in exchange for something, and as a result, most often accept short-term “temporary housing”. So it happened this time: in early September, the ceiling was raised until December 8th. And there the same leapfrog will begin again, but only after the New Year,
Far-right political fanatics are most tempted to play with public finances: ultra-conservatives try to tie social spending cuts, anti-immigration measures, abortion restrictions and other ideological additives to any financial bill. In 2011, thanks to them, the United States was on the verge of default, and for the first time in history, the Standard & Poor's rating agency downgraded the US government's credit rating, which had always been at the highest level until then.
Another crisis occurred in early 2013, when the US Treasury had to resort to extraordinary measures to avoid default. The US government "shut down" for the period from 1 to 16 October 2013. During this shutdown, approximately 800,000 federal employees were placed on indefinite unpaid leave, and another 1.3 million civil servants continued to work without receiving a paycheck.
There were budget crises both before and after these episodes. When approving the state budget for each successive financial year, ideological quarrels occur, and the same thing happens every time the time comes to raise the "debt ceiling". Ideological opponents bargain, and after bargaining, they raise the ceiling, “suspend” it for a certain period, and then everything repeats again.
Living anachronism
For all the irrationality of the current US president, it must be admitted that Donald Trump was right when he most recently called on Capitol legislators to abolish the idiotic “ceiling” once and for all. After all, we are talking about expenditures previously approved by Congress and already made by the government! Pulling up the budget to the required level should happen automatically, without any demagogy about "clothes" and "legs".
But legislators from both parties are already addicted to dangerous games with the "ceiling". If earlier the “debt ceiling” was something like a nuclear weapon that intimidates and deters, but is absolutely not intended for practical use, now this “ceiling” is regularly brought down on the heads of political opponents by both Republicans and Democrats.
Trump agreed to raise the "ceiling" with the Democrats over the HEAD of his fellow party members in Congress, but the Democrats did not agree to raise the "ceiling" for a year and a half (the Republicans agreed), but persuaded Trump to build another three-month "temporary house". Because they are in opposition, and they need the "ceiling" as a weapon in the fight against the ruling party - for now they need it. In fact, the Democrats are not opposed to completely eliminating the notorious "ceiling", as Trump suggests. But a significant part of the Republicans oppose this, their party leadership vaguely promises to deal with this issue next year ...
The current Democrat-Trump deal, which is also supported by a majority of Republicans, has packaged a ceiling increase along with $15.3 billion in Hurricane Harvey emergency relief and three months of the government's current level of budgetary funding. What will happen after December 8, when the deadlines for budget financing and raising the "ceiling" will expire simultaneously, no one can really say. It is clear that this does not bode well.
Against such risky games once warned the "icon of conservatism" Ronald Reagan. Debt obligations must be paid unquestioningly: there are not enough funds in the budget - replenish it with new taxes or take new loans. The Republicans have forgotten the Reagan precepts, the Democrats have become weather vane opportunists - they condemn or support the "ceiling" depending on the situation, and this anachronism continues to exist.
Doesn't seem like much
And yet, what exactly will happen if the notorious “debt ceiling” is not raised in three months? Take the REUTERS phrase: “When the money runs out, the government may start to miss payments on debts and other obligations, such as, for example, Social Security pensions. Many economists believe that a US default could cause financial panic and even, quite possibly, an economic depression.”
Let's start with force majeure: hurricanes Harvey and Irma, which caused colossal destruction in Texas, Louisiana, Florida and other states, in no way can fit into the Procrustean bed of $ 15 billion, "generously" allocated for the elimination of consequences in one bundle with raising the "debt ceiling" and maintaining budget funding. According to experts, assistance from the federal treasury will have to be at least two to three times more. 15 billion, as experts say, will be enough until mid-October, and then what?
To some extent, what began to happen during the “shutdown” of 2013 gives an idea of the coming cataclysms. Investors began to sell treasury bills of the American government. Financial firms have begun to cash out their investments, as only cash can be considered a last resort in a time of financial turmoil. Stock quotes collapsed. Foreign investors began to sell American securities. Then the US Treasury stopped coupon payments on some bonds. Some American pensioners did not receive their pensions on time.
Thank God, things didn't come to a default, but if it does happen sometime, the consequences will be monstrous both for America and for the whole world. In addition to the above, the United States is threatened by an abrupt increase in unemployment, a sharp depreciation of the DOLLAR, the loss of trillions of dollars of investments by millions of people. It doesn't take much to make all this a reality, because the growth of US GDP does not reach 3%, a full recovery from the Great Recession of 2008-2009 has not yet occurred.
“The damage that will be done to the United States,” says Rafferty Capital Markets analyst David Bav, “will be so great that it will take decades to recover from the depression caused by the default and the accompanying dumping of US Treasury securities worth trillions of dollars on global financial markets".
US default will hit RUSSIA
Let's not forget that the US economy is about a quarter of the world, so the "American tragedy" in the financial sector will inevitably become British, and Chinese, and Russian. At the same time, emerging markets, including Russia , are more vulnerable to global financial shocks than the developed, diversified economies of the United States, Western Europe, Japan, Australia and New Zealand, according to economists. However, there are some nuances here.
Earlier this year, the World Economic Forum in Davos noted: “The dollar-denominated debt of emerging economies has grown rapidly in recent years and has reached about $3.5 trillion. As the value of the dollar rises, so does the debt burden of these countries.” Arguing from the contrary, we can assume that the reduction in the price of the American "greenback" (and it is already observed) can somewhat ease the debt burden. In the first half of 2017, Russia's external debt increased by 3%, or by $15.5 billion. As of July 1, it amounted to $529.6 billion, which is 36% of Russian GDP. (For comparison: the United States and the European Union have debt and GDP approximately equal, Italy and Germany have a debt of almost one and a half GDP.)
And, of course, it is hardly legitimate to treat all emerging markets with the same brush. Russia is a large and far from the poorest country, with a per capita GDP of about $15,000. Russia's gold and foreign exchange reserves amount to over $400 billion. The economy, of course, is mainly based on raw materials, but it is quite "shock-resistant", which was demonstrated both by the crisis of 2008-2009 and the war of sanctions that began in 2014. So an American default would hardly have brought it down, although a wave of overseas financial tsunami would have reached Russian shores.
America has already given the world the Great Depression that began in 1929 and the Great Recession of 2008-2009. No one wants to receive another similar “gift” from Washington, starting with the Americans themselves. That is why experts still hope that common sense will prevail in the minds of decision makers in Washington. Ideological slogans are one thing, and economic realities are another, more weighty one. Well, anachronisms such as the "debt ceiling" must still be disposed of.
Expert opinion
Alexander Razuvaev, DIRECTOR of the analytical department of Alpari: “The US national debt for the first time in history exceeded $20 trillion. The Americans are unlikely to ever be able to repay their obligations, but so far CHINA, Japan and other countries wish to refinance them, there will be no problems. The entire modern financial system is built on the American dollar and American government bonds, which by and large suits everyone. Including Russia and China, which are not trying to fundamentally change it, trying to achieve for themselves only special preferences within the framework of the current rules of the game. How long this situation will last, no one knows. Conspiracy theorists and bloggers constantly scare the world with the US default and the collapse of the dollar. People need something to entertain, but this is talk in favor of the poor. Regarding the impact of this whole situation on Russia: the portfolio of US bonds of the Central Bank of the Russian Federation exceeds $100 billion. Relations between Russia and the United States are far from ideal, but there will be no arrest of the Russian portfolio. Just because in this case the US will lose its status as a prime borrower,
