<img src='https://news.cgtn.com/news/2024-10-25/US-interest-burden-escalates-political-risk-1xZzU8UI15C/img/07ed209d1e094c2d9dfa8c0c7adce64e/07ed209d1e094c2d9dfa8c0c7adce64e.jpeg' alt='U.S. net interest exceeds defense spending. /Zhao Hong'
The U.S. Treasury Department said last Friday that the federal budget deficit grew to $1.833 trillion for the 2024 fiscal year, which ended on September 30, the highest outside the COVID-19 era, as interest on federal debt exceeded $1 trillion for the first time.
According to a Reuters report, the $1.833 trillion budget deficit was 6.4 percent of the U.S. GDP, up from 6.2 percent the previous year.
One major factor contributing to the growth is historically high budget deficits, which have caused the overall amount of debt outstanding to climb in recent years. These deficits are a result of the U.S.’ unprecedented spending to combat COVID-19, revenue limits from the 2017 tax cuts, and a constant increase in social security and Medicare costs. The increase in interest rates brought on by inflation is another significant factor, according to Bloomberg.
The dollar has dominated international financial markets since World War II, upholding America’s position as the world’s leading economy. This gives the United States exorbitant advantages that no other nation has, including cheaper borrowing costs, the ability to impose broad sanctions on its enemies, and the absence of exchange rate changes that could affect the value of its debt.
According to an article published in Bipartisan Policy Center, written by Upamanyu Lahiri, a policy analyst, as demonstrated by its usage in about 90 percent of international foreign exchange transactions, almost 60 percent of international foreign exchange reserves, and invoices for more than half of international trade, the dollar dominates the world’s financial markets. However, the dollar’s worldwide dominance and American leadership on the international scene may be undermined by the nation’s mounting national debt. It might entail the loss of the disproportionate advantages that the United States has, which would eventually result in slower economic development, increased unemployment, and less equity wealth.
Lahiri also said the decline in the value of the dollar may make American companies less appealing to international credit and capital markets, which would make it more difficult to finance new ventures and corporate expansion. Price increases may also affect individuals and businesses that depend on imported goods.
Luan Wenlian, a researcher from Chinese Academy of Social Sciences said finance is an important means of transferring the debt burden of the United States. In order to curb inflation, the Federal Reserve has repeatedly implemented the policy of raising interest rates on the dollar, pushing up the value of the dollar, resulting in the depreciation of the currencies of other countries, especially developing countries, raising the debt-servicing costs of these countries and making their dollar assets flow back to the United States in large quantities. The Federal Reserve’s interest rate hike monetary policy has been implemented for more than four years, helping the United States to restore economic equilibrium and alleviate inflationary pressures. Now that the Federal Reserve has opened its first interest rate cut in more than four years, the ensuing depreciation of the dollar will bring both imported inflation to other countries and a shrinking of their dollar-denominated reserves and U.S. debt assets.
(Cover image via CFP)
