By Isidoros Karderinis
America is today at the most critical point in its modern history. It is threatened with a collapse which, if it happens, will drag most of the world down.
The U.S. debt has now, amid high inflation, rising interest rates – most economic analysts expect the U.S. central bank to continue raising rates – and growing economic uncertainty, in September 2023, topped $33 trillion and amounts to 124% of GDP. And the deficit of the general government – which is the federal and local government together – is over 7% of GDP. This level of debt is more than three times the level of debt in 2008 ($10 trillion) and 10 times the level in 1990 ($3.2 trillion). US debt levels have ballooned significantly in recent years, especially after a 50% increase in federal spending between fiscal years 2019–2021, according to data from the US Treasury Department.
This stark reality resulted in the House and Senate passing necessary legislation in early June 2023 that raised the ceiling on federal borrowing while imposing some limits on spending.
This, of course, was done in order to prevent a catastrophic bankruptcy of the government, i.e., the scenario of the country declaring default, unable to pay its creditors and pay salaries and pensions, which would obviously have a catalytic negative impact on international markets, as well as in the American and global economy, given the size of the American debt.
In particular, the agreement on the debt allows the suspension for two years, until January 1, 2025, i.e., the period after the extremely critical for the entire planet presidential elections in November 2024, the maximum borrowing limit of the American public (31.4 trillion dollars).
The world’s largest economy, however, was once again faced with the prospect of a government shutdown. So, Congress recently passed the short-term funding bill to avoid a government “shutdown” (i.e., US bankruptcy) just hours before the deadline and ensures funding through November 17, while ruling out any new aid to Ukraine. A government shutdown that would furlough tens of thousands of federal employees without pay and suspend various government services would begin at 00:01 ET (04:01 GMT) on Sunday 10/1/2023. An exception, however, would be personnel required for state functions such as defense, police duties or other vital functions, who would remain on duty without pay.
The recent 45-day deal to keep the government open has thrown up a risk from October to November – a point where it could end up doing more damage to fourth-quarter GDP numbers. Bloomberg Economics estimates that each week of shutdown shaves about 0.2 percentage points off annual GDP growth, with most but not all recovered once the government reopens.
At the same time, in March 2023 three banks in the United States of America with significant activity in the field of technology and cryptocurrencies collapsed. Specifically, these are Silvergate Bank, Silicon Valley Bank and Signature Bank. This was followed by the collapse, takeover and closure of another bank, First Republic Bank, in May 2023.
There are currently 725 US banks on the FDIC’s death list. The strain on the financial sector caused by bank failures remains a threat. The banking crisis is not a problem of quality of credit conditions, but is caused – now – by the inability to finance the ever-expanding US debt.
In addition, some new threats threaten to derail the American economy. September’s selloff in stocks pushed the yield on the 10-year note to a 16-year high of 4.6%. Borrowing costs higher for a longer period of time have already sent equity markets tumbling. They could also jeopardize the housing recovery and deter companies from investing.
Also, many financial analysts are calling the impending reactivation of federal student loans, after the end of a 3 1/2-year pandemic freeze, a potential shock to the economy. Nearly 44 million borrowers will start paying an average of $393. Inevitably, this will mean less spending elsewhere, at least for some households.
Since September 15, moreover, the United Auto Workers union has been engaged in a historic strike against Detroit’s three major automakers: Ford, GM and Stellantis N.V., which, according to a study by the Anderson Group, in just one week, cost the US economy over $1.6 billion.
At the same time, oil price crises have typically, throughout US history, helped trigger recessions. In other words, the oil price crises were followed by a recession. High black gold prices increase costs for a wide range of companies and strain consumer budgets, leading to higher inflation and lower consumer spending. It is a recipe for economic disaster that the world is being asked to face once again.
It should also be noted that oil prices have soared since June due to production cuts by the world’s largest crude producers (OPEC+, which includes Russia and Saudi Arabia). International benchmark Brent crude oil prices rose 28% from their June 11 low of $74 a barrel to over $95 a barrel, speeding toward $100 a barrel.
But events in the rest of the world could also drag the US down a downward path. The world’s second largest economy, China, is mired in a real estate crisis. In the euro area, lending is shrinking at a faster pace than at the nadir of the sovereign debt crisis, a sign that already stagnant growth is set to move lower.
In closing, I would like to emphasize that the horizon in the American economy and in the markets is becoming increasingly dark. The dark clouds in the financial sky are thickening, naturally causing worry and fear, and foretelling that the storm will, unfortunately, not be long in coming.
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Isidoros Karderinis was born in Athens in 1967. He is a journalist, novelist and poet.
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An excellent well written, easy to understand explanation of the world financial crisis that has been created by libertarian ”winner take all” economic policies in the USA (United States of Apartheid) and tight-fisted Europe.
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Funny how interfering in the economies of other countries is just a short term fix for Wall Street that destroys the target foreign economy. Think Argentine, and now Australia with the USUKA debacle propping up the profits of the US sub builders . . . . . and exposes Australia to the same American carpet-bagging consequences as Iraq, Afghanistan and indeed every other country that has natural resources that American corporations wrongly believe belong to them by god-given right.
The crash,which has been averted by creative accounting,forensic criminality,and the manipulation of dumb politicians,has been a long time coming.Along with runaway climate change,a general lurch to the right by governments that have learned nothing from history,we are well and truly fucked”.We’ll all be rooned,said Hanrahan”.Weaselese reigns supreme,even in the’Lucky Country’
Putin must be every pleased with his plants in the US Congress – now if he can just get his boy up again in the Presidential race he will have effectively screwed the US economy and had Ukraine handed to him on a plate.
Quite an achievement !nw
Capitalism is efficient and effective in any direction it heads. Trouble is, in the wrong hands and unregulated against the biases of ‘class’, it becomes ‘suicide capitalism’ – plunging itself beyond hope to demise.
In my lifetime it has been very plain to see. In the west, significantly accelerated by the fascist Margaret Thatcher, and the neo-religious dim-wit, Ronald Reagan, and latterly in the east by Xi. They will all claim their manoeuvres were warranted, however, they would be neglecting to acknowledge that they failed to understand the need for government prudential control, and that the fertilizer they lavished would kill off native growth and engorge the invasive weeds of the free market.
What can be said about politician’s endless quest for popularity, playing off every opportunity and crack in the fabric of their surrounds? What can be said about the invasive weeds of the free market’s quest for domination and its endless obligation to promote growth and influence those that, unrestrained, may share in the benefits? As they enter their dance, success being a veil over their ordinariness, their entrancement draws them to a belief in their god-given elevation to aristocracy and its accoutrements. Of course, in such a heavenly romance, earthly needs are irrelevant, all they desire is to spread the love.
Like all such affairs, it’s bound to crash and burn. Yet eternally, prudence and the earthly needs of ordinariness will, for the enraptured at their first embrace, become constraints on their unrequited love, so elope they must to the paradise of their own desires.
Britain; crashed and burning. America; on fire and heading for the crash. China; falling fast but not quite out of control. And the rest of the world hanging on for grim death as they’re dragged along, making up fairy stories so as to ease their sleep and avert the nightmares. Of course, Russia, refusing everything and everyone offers only its roulette.
Seems Mother Nature’s ability to wield unsurpassable tyranny is the only thing that will bring us back to earth. For example the likes of Biden’s Inflation Reduction Act – probably a tad too little too late, and still a dance with the free market. It does not bode well, it seems politicians are not equipped to handle Mother Nature’s tyranny, let alone the free market.