Mutual accountability: What will mean a ‘debt deal’ for the US economy – Reuters

“Good news. We have spoken with President McCarthy and reached a bipartisan budget agreement and are ready to move to a full Congress,” the president said.

The vote on the Principal Debt Ceiling Bill is scheduled for today, 31 May. The document, previously approved by US President Joe Biden, has already received the approval of the committee (House of Representatives), which is led by Republicans.

To pass the 99-page Fiscal Responsibility Act, heavily criticized by some extremists, the Republican Party will need a majority in the House of Representatives. The bill would extend the debt limit by two years, along with modest federal spending cuts.

The “debt deal” is needed to avoid a default that the US Treasury says could otherwise happen as early as June 5. This was told to Rossiyskaya Gazeta by Olga Belenkaya, head of the macroeconomic analysis department of FG Finam. The condition of the agreement was the reduction of part of non-military spending, she said.

“The US Treasury will have the opportunity to increase its borrowing, and should actively take advantage of it. According to various estimates, by the end of the year, it will be able to place Treasury bills and bonds for approximately 1,000 billion dollars “, she said.

This could lead to higher yields in the debt market and “exacerbate liquidity problems for smaller US banks,” Belenkaya said. In fiscal years 2024-25, fiscal spending (with the exception of the largest social programs and military spending) will be below levels proposed by the White House, which could have a dampening effect on economic growth.

“As of today, an agreement has been reached to raise the cap to $1.5 trillion, which isn’t so scary on the scale of the $31.5 trillion principal debt,” Sofya Glavina, head of the digital economy program at the University Institute of Economics and Economics RUDN. , believes.

If approved, she said, it would allow the federal government to borrow money until the end of the next presidential election, scheduled for November 2024. This increase will last a few years and, most likely , the next revision of the ceiling will be a headache for the new president after the 2024 elections.

“The market reaction to the decision to suspend the debt ceiling was neutral. However, in the long term, this decision could have a negative impact, investors’ confidence in the stability of the dollar and the reliability of the American economy. may weaken somewhat,” said Ksenia Bondarenko, senior lecturer in the Department of Global Economics at the HSE’s Faculty of Global Economics and International Politicians.

Despite the fact that the total public debt of the United States in nominal terms is the largest in the world, the public debt as a percentage of GDP in the United States is still lower than that of Japan and the countries of southern Europe, a explained Bondarenko. The last time the United States had a budget surplus was in 2001. In 2022, the budget deficit was 5.8% of GDP, and in 2020 it reached a record 15% of GDP .

“It is unlikely that by the start of 2025 there will be significant progress in reducing the volume of public debt, as the country remains in a situation of double fiscal and current account deficits,” he said. -she explains.

The U.S. dollar will gradually weaken against other world currencies, the dollar index will decline and may fall below the base value by 100 points, said Valery Khoruzhy, professor at the Department of Tax and Tax Administration of the Financial University. Here, too, a certain movement has already begun. The dollar is now used as a safe haven currency. This means that in anticipation of some kind of crisis, many investors “turn to the dollar” as something more reliable and stable in order to wait out these crisis phenomena.

“In Russia, the dollar exchange rate will be influenced by exporters and oil prices, the threat of sanctions and dividends. At the same time, the effect of transactions from the sale of enterprises by foreigners will persist, but to a lesser extent. The dollar may return to around 75-76 rubles in June, the expert expects it,” the expert concluded.

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