Increasing US government debt will not lead to a default, but it will create significant business problems. Economist Yaroslav Kabakov stated this on January 3 in a conversation with Izvestia.
The day before, Reuters, citing a statement from the US Treasury, reported that the US national debt for the first time ever exceeded $34 trillion.
“We can say that [президент США Джо] Biden managed to solve the problem with the national debt ceiling, actually pushing it back until 2025. But if we look at the US government debt, it is very difficult to assume a default, given that the debt is denominated in US dollars. Thus, the problem may well be solvable. <...> To be honest, of course, the US is not in danger of defaulting,” Kabakov said.
At the same time, according to him, certain problems may arise related to the turnover of treasury bonds with their volatility, which will create additional risks for US business.
“In the current situation, there is no need to reduce public debt as such. There are more pressing problems related to inflation and the key rate, and in this regard, reducing the key rate will reduce interest on government debt. This is probably the primary problem now,” the economist emphasized.
In addition, there is a risk of turmoil in the corporate sector.
“Of course, the high interest rate has a strong impact on the world market, on global financial markets, which creates difficulties both for world trade and for the use of the dollar in world trade, because funding in dollars becomes much more difficult. We see, among other things, tectonic shifts in world trade in terms of the use of the dollar and other currencies that are actively replacing the dollar in world trade,” the expert concluded.
In early November, Russian Presidential Press Secretary Dmitry Peskov said that the United States has such a national debt that there will soon be not enough paper to print dollars to service it.
On October 21, the US Treasury reported that the US budget deficit for the year reached $1.7 trillion, which is equivalent to 6.3% of GDP. The department’s report clarified that financial experts identified a drop in income as a significant reason for the deficit, noting the importance of the president’s proposed policy to reform the tax system.
Back in June, Biden signed legislation to raise the US debt ceiling. It was assumed that the document would suspend the public debt limit until January 1, 2025 and increase it from January 2, 2025.