The U.S. debt ceiling refers to the maximum amount of U.S. Treasury bonds issued within a certain period of time approved by the U.S. Congress. Before 19 17, the U.S. government had to get authorization from Congress every time it needed to borrow money. During the First World War, in order to improve the flexibility of the state machine, legislators decided to grant the government the right to borrow in a package, provided that the total amount of loans borrowed by the federal government (excluding local governments) was less than the existing quantity limit. It can be analogously understood as the overdraft limit of a personal credit card, except that this card in the hands of the US government can be withdrawn.
U.S. Treasury: By May 6, 20 1 1, the U.S. debt had reached the legal limit of 14.29 trillion dollars. Geithner urged Congress to amend legislation to raise the debt ceiling as soon as possible, so as not to have a disastrous impact on the economy. In a letter to congressional leaders, Geithner said that from 16, the U.S. treasury will enter a "suspension period" until August 2, 20 1 1, when the U.S. borrowing authority will be exhausted.
The origin of American debt problem
The debt problem in the United States has a long history, which is caused by the long-term fiscal deficit. According to statistics, the US fiscal deficit in fiscal year 2008 hit a new record of $455 billion, an increase of 180% over the previous fiscal year. The fiscal year 2009 was seriously affected by the financial crisis, and the US fiscal deficit reached $65,438 +0.42 trillion, an increase of 207% over the fiscal year 2008. In fiscal year 20 10, the US fiscal deficit was $65,438 +0.3 trillion.
Looking back, the deadlock in American debt negotiations is due to the contest between political parties representing the interests of different classes for the needs of the 20 12 American election, such as the term and amount of debt, whether to increase taxes in the austerity plan and so on. However, we should also pay attention to the possible damage to the interests of creditors. After all, postponing debt repayment is one of the common methods to solve the debt problem. And the U.S. government can't guarantee performance.
The essence of American debt problem
The debt problems faced by the United States and the euro zone are very different. At least in the medium term, the United States does not see the so-called sovereign debt crisis, and the risk of debt default is more due to its domestic political game. Previously, the United States raised the debt ceiling more than 100 times, and there was little debate. But this time, it has been widely concerned, on the one hand, because of the seriousness of the consequences of default, on the other hand, because of the subtle domestic political situation in the United States. The US federal government debt is close to the upper limit approved by Congress-about 14.3 trillion US dollars. The debate on raising the debt ceiling is a direct confrontation between the Party and the Democratic Party in Congress for their own interests, involving the short-term and long-term interests of the two parties. The short-term benefit lies in that communist party and the CPC are opposed to tax increase, preferring to protect the interests of the rich in the big consortia, while the Democratic Party is opposed to spending cuts, preferring to increase taxes. The long-term interest lies in the 20 12 presidential election. * * * On the surface, the Republican Party indicated that it didn't want the United States to default, and it was afraid of arousing people's disgust, so it pretended to follow suit and made suggestions. However, there is a principle in its proposal, which is to raise the ceiling slowly and in stages to solve this problem. The strategy of "procrastination" has kept people worried about the debt ceiling and complaining about the Democratic Party. For another example, the Senate * * * and Party leader Mitch McConnell put forward a so-called "alternative plan" on July 12. According to the plan, Congress will authorize the Obama administration to ask Congress to raise the debt ceiling three times before the end of 20 12. Congress can reject this request, but Obama can then use the presidential veto to veto the resolution of Congress. This actually gives Obama the power to raise the debt ceiling indefinitely. The purpose of McConnell's doing this is to prove to voters that the Republican Party does not want to see government debt default, and has made major concessions to this end. Secondly, the Democratic Party is forced to bear all the responsibilities and consequences of raising the debt ceiling, including the dissatisfaction of voters. On the other hand, the Democratic Party hopes to solve the problem immediately, and hopes that the people will forget it as soon as possible after the completion, and it is best not to think about it in the 20 12 general election. Although it is said that every time the debt ceiling adjustment is discussed in American history, it will always be made difficult by another political party, but this time it coincides with the approaching election, and the party intends to escalate the incident slightly to expand its influence.
In fact, the US government debt ceiling reached the ceiling in May of 20 1 1, but at that time, the US Treasury Department took four measures to temporarily expand its solvency, including: terminating the issuance of state and local government bonds; Announce the termination period of the bond issuance of the executive retirement and disability fund; Terminate the reinvestment of government bond investment funds; Termination of reinvestment in the foreign exchange stabilization fund. These four temporary measures can postpone this "deadline" to August 2, but it also means that the government has no choice. If Congress does not pass any resolution to raise the debt ceiling by then, the US government will face the risk of default. The sovereign debt crisis in the euro zone is real. Once Greece, Portugal and other countries lose international aid, it is impossible to tide over the difficulties.
The Impact of US and European Debt Problems on Global Macroeconomy
Previously, the US government had three small-scale defaults in the 1930s, 1960s and 1970s, but the impact on the world economy was limited. After the default, the dollar is still sought after. However, the global economy is in deep financial crisis, and the recovery momentum of major economies is fragile. If the US debt defaults, the consequences will be quite serious.
First of all, the national debt in circulation will fall below the par value, that is, the holders will face the risk of principal loss, and the money market funds and banks holding a large amount of national debt will also face capital outflow, leading to economic ischemia and returning to the state of market liquidity shortage during the 2008 financial crisis. Without large-scale capital injection, the US economy will face a 20%-30% decline.
Secondly, the interest rate of US Treasury bonds has always been regarded as the market benchmark interest rate, which is the pillar of the credit system. Government default will lead to the collapse of this pillar (at least temporarily losing the function of benchmark interest rate), and then disrupt a large number of private contracts and various transactions in the economy, that is, it is difficult to price private credit, which further causes the lack of economic liquidity.
Finally, international influence. The government's default is likely to cause its credit rating to be downgraded from AAA to AA+, and some world trade will fall into temporary chaos. Major international investors in US debt, such as China, which holds about 1 trillion dollars, and Japan, which holds about 900 billion dollars, will face the risk of direct depreciation of US debt and how to re-price it in the future.
Countermeasures and strategies
Diversification of foreign reserves is an established strategy, but the structure of foreign reserves is not easy to change. Undeniably, the proportion of euro assets in China's foreign reserves is indeed increasing, but due to the rapid increase of China's foreign reserves, investment channels are necessary. For various reasons, it is inevitable that China will hold American debt. No matter how this "quarrel" ends, the American debt problem may not be completely solved for quite some time, and it needs constant attention.
The United States is a sovereign country, and the dollar currency depends on the authority of the US government. The debt ceiling problem is the limit value defined by the global monetary value, and the expenditure is greater than the income.
First, sovereign countries can issue money;
Second, not every penny in the account has a corresponding currency;
Third, the debt ceiling and controllability determine a country's global reputation, and there is no problem of government bankruptcy and loss of debt sovereignty;
Fourth, the extreme upper limit of the currency will inevitably lead to large-scale chaos and turmoil.
If the United States exceeds the total value of its inherent assets, there will be no sovereignty problem; Those who don't crisis the intrinsic asset value will lose many intrinsic assets and institutions, and the debt ceiling will be less damaged. The United States needs to mortgage certain assets and rights to obtain funds, and its debt situation is in the middle and lower level. The outbreak of the international financial crisis has greatly increased the deficit of the American government, making it a common practice to borrow money to live, and the national debt record has hit record highs. As of September 30, 20 10, the balance of US federal government debt was 13.58 trillion US dollars, accounting for about 94% of GDP, and exceeded 14 trillion US dollars by the end of the same year. 20 1 1 February 22, 2008, when the balance of available bonds was only 21800 million dollars, the US Congress failed to reach an agreement on raising the ceiling.
Finally, US Treasury bonds peaked. On May 65, 1965, 438+065,438+06, US Treasury bonds finally hit the upper limit of 65,438+04.29 trillion US dollars allowed by Congress. According to the estimation of former US Treasury Secretary Timothy Geithner, because the growth rate of fiscal revenue is lower than the growth rate of government expenditure, the US government will not be able to issue new treasury bonds for financing before July 8, 201,and some government agencies will be forced to suspend their work, and some budget expenditure items will also face "waist cutting". As of May 20 1 1, 16, the debt of the US federal government has reached 14.29 trillion US dollars. The debt scale has exceeded 90% of the gross domestic product (GDP). If Congress does not raise the ceiling before August 2, the United States will face the risk of sovereign debt default.
Carmen Reinhardt, a senior researcher at Peterson Institute for World Economics, and Kenneth rogov, a former chief economist of the International Monetary Fund, have jointly conducted research, which shows that when a country's total debt accounts for more than 90% of GDP, its economy will fall into a growth lag.
The U.S. Treasury insists that it is absolutely impossible to continue to fulfill its payment obligations after August 2, and the U.S. government will be forced to default. Rating agencies have said that if they default, it will lead to serious consequences of rating downgrade. The debt ceiling at the beginning of 2065438 was +06.39 trillion US dollars, and the technical breakthrough was 20 13 65438+ 10/0/day. The Ministry of Finance can still pay government bills by moving, but only until mid-February. Since then, the government has decided to spend more than taxes. If it can't borrow more money, the Ministry of Finance won't have enough cash to pay the government.
On 20 13123, the U.S. house of representatives voted to pass a long-awaited bill, allowing the U.S. federal government to continue the necessary borrowing activities before May 23, 20 13, in order to prevent debt default.
The bill was passed by 285 votes to 144 in the house of representatives. However, although the leaders of the White House and the Senate welcomed the bill before, some Democrats voted against it because they were dissatisfied that the debt ceiling was only "temporarily" raised.
According to this agreement, the tax rate for individuals earning more than $400,000 a year and families earning more than $450,000 a year will be raised from 35% to 39.6%. In addition, the two parties agreed to postpone the "automatic deficit reduction mechanism" originally scheduled to be launched in early 20 13 for two months, and replace it with a deficit reduction plan totaling 24 billion US dollars during this period. Due to the status of the US dollar as the world currency, US Treasury bonds have actually become the investment targets that countries all over the world compete to buy in order to obtain stable income. In this case, although the issuance of US Treasury bonds is a domestic act, it has a worldwide impact. The United States takes "debt" as the basis of macroeconomic operation. Simply put, the US government cannot issue US dollars, and government financing is achieved by issuing bonds. Dollars are non-convertible notes issued by the Federal Reserve Bank of the United States. However, it cannot be printed at will alone, and the Fed must decide the number of printed dollars according to the number of government bonds purchased. The U.S. government sells government bonds to the Federal Reserve, which provides it with the same amount of dollars. But the "equivalent value" here is usually not equal to the face value, because the national debt has a repayment period and interest rate, and the purchase price is often lower than the face value. The difference between the two plus the interest rate income is the national debt income. Through this process, after the Fed gets the US Treasury bonds, it can sell them in the bond market for profit and charge interest. The U.S. government has also received dollars for budgetary expenditures to maintain the normal operation of the government and public enterprises.
In this operating mechanism, raising the national debt ceiling is to increase the fiscal deficit of the United States, which can stimulate demand and increase output in a short period of time, which is also the main basis for the United States to adopt an economic stimulus plan during the international financial crisis. But in the long run, when the economic recovery is close to full employment, the government deficit and extra dollars will inevitably lead to financial crisis and inflation, which in turn will force interest rates to rise and curb investment and consumption. But at the same time, due to the world currency status of the US dollar, high interest rates will attract overseas funds to arbitrage, and foreign investors will buy US dollar assets such as US Treasury bonds, which will make the US dollar appreciate and reduce the import cost. To a certain extent, it will make up for the lack of government investment and partially offset the negative impact of the increase in fiscal deficit on investment.
However, the debt has to be paid, not to mention the interest. According to estimates, according to the speed of the increase of debt and deficit in the United States, by 2023, all the income of the US government will be mainly used to pay due debts and interest, and it is impossible to use it for other normal public expenditures such as national defense, education and health. In other words, by then, the US government will be overwhelmed by the "mountain of debt". There is no need to wait until 2023. As long as the U.S. government touches the debt ceiling, it cannot issue new bonds or raise funds through the bond market. Its expenditure will depend entirely on income, namely taxes and administrative expenses. If the expenditure exceeds the government's revenue capacity, it can only be reduced, otherwise the government departments will not be able to operate.
However, after all, the issuance of U.S. Treasury bonds is restricted by Congress, and the amount of bonds issued cannot be increased indefinitely. On the issue of the ceiling of national debt issuance, the Democratic Party and the Democratic Party, which occupy the majority of seats in the House of Representatives, have obvious differences with President Obama's Democratic Party. * * * The Chinese Communist Party believes that only by signing a long-term agreement to cut government spending, including cutting medical care projects and social insurance system plans, can we agree to raise the ceiling; The Democratic Party wanted to increase government revenue by raising taxes, but it was rejected by the Party and the Party. 1. The possibility of US Treasury default is almost zero. Since 197 1, Congress has approved to raise the debt ceiling for 80 years. We should have reason to believe that Congress will raise the debt ceiling as scheduled this time. In addition, congressional leaders are well aware of the disastrous consequences of default on US Treasury bonds, and they will eventually make rational and correct choices.
Second, Congress's approval to raise the debt ceiling should be tortuous. The negotiation of raising the debt ceiling is a political game, and both the Party and the Democratic Party are masters of the game with hundreds of years of experience. The answer won't be revealed until the last minute. * * * and the party fell off the fiscal cliff, and this time we should fight back quickly. There is no doubt that the Democratic Party also has the initiative in Obama's attitude of raising the debt ceiling. The struggle between the Democratic Party and the Party in the White House, Congress and both houses of Congress will be more intense.
Where is the fundamental way to solve the debt ceiling? The debt ceiling is not a fundamental issue, but a procedural issue, not a root cause, not a structure, but an episode. The debt ceiling negotiations will continue for a long time until the financial situation of the United States improves and the total debt gradually decreases.
From the historical experience, in order to maintain the status of the US dollar and maintain the source of debt financing, it is less likely that the United States will default directly in the future, but it does not rule out indirect default. These methods include dollar depreciation and inflation. Although there has never been a direct sovereign default since the independence of the United States, it was repeated in disguise: 1933, the US Congress abolished the gold clause of the national debt because of the depreciation of the US dollar, and the buyers of the national debt could no longer exchange the corresponding gold according to the original contract; After World War II, the United States adopted the inflation method, which reduced the proportion of total debt to G D P by 40% in 10 years. 197 1 year, the United States unilaterally stopped the exchange of dollars for gold, which led to the collapse of the Bretton Woods system and the establishment of the Jamaican system, which was even more evidence of the indirect default of the United States. At present, it is estimated that if the average annual inflation rate in the United States is 6%, the proportion of total debt in G D P will drop by 20% in four years.
In short, it has long been a common practice in the United States to use the depreciation of the US dollar and inflation to default in disguise to reduce debts and deficits. This is the ultimate and biggest risk for global investors.