With Donald Trump as President, the past few years in the United States were marked by aggressively borrowing, reminding us of the president’s nickname “King of Debt”. Trump could have reduced the the country’s debt before, when when there was some stability in the economy. Instead, he decided to make more debt. After all, the government had to pay for huge tax cuts and increased spending. With this attitude, the US entered the fiscal crisis caused by the coronavirus already in a complicated financial situation.
With the current crisis, the country’s debt is even greater because the government is trying to keep the economy functional. In just one quarter, the Department of Treasury borrowed S $ 3 trillion. In 2008, another period of severe crisis, this figure was almost six times lower.
What you must know about the fiscal crisis in the US
According to economists, the United States needs to keep relying on debt to avoid a total economic depression. This is necessary to pay the debt when the crisis we are facing now is over.
Among the consequences of these debts are possibly the increase in interest rates, rising inflation, and higher taxes.
Either way, the priority at the moment is to help businesses and families survive. The largest financial stimulus package in history, worth $ 2.3 trillion, has been approved. The money will be used to benefit small businesses and families in need of finantial support. Unfortunately, increasing debt is the only possible solution at the moment for the fiscal crisis.
More on the fiscal crisis in the US
Fiscal stimulus is a practice that explodes the deficit, forced by the need to avoid another economic depression at all costs.
Despite everything, the markets are relatively stable with the US debt. This is because this expense is of an emergency and temporary nature. Also, the most important international reserve currency in the world is still the US dollar. Finally, the US Treasury market is also the most relevant in the world. These advantages make all the difference in the country’s debt. On top of all this, interest rates are almost zero at the moment, which makes loans much cheaper.
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On the other hand, the economy may recover quickly and suddenly. This would force the federal government to abruptly reverse the adopted strategies. If that happens and the economy really comes back strong, inflation and interest rates will increase, estimulating an even more complicated fiscal crisis that would compromise economic growth.
