It was agreed that the state’s debt burden could exceed the previously set limit of $31.4 trillion through January 1, 2025. The US House of Representatives and Senate are yet to pass judgment on the deal. This should happen during the week.
Mujagic took into account that both sides would not reach an agreement. ‘In recent decades it has often made little difference.’ But despite the big differences, both sides still wanted to work together. “Today, however, there are many deputies who have difficulties with this,” says the macroeconomist. That’s why he was close this time, he thinks.
Water with wine
Both sides had to put water in the wine for it. The American media report, based on sources inside the White House, that the American tax authority, the Internal Revenue Service, will have to suffer a significant loss as a result of the operation: 20 billion dollars of the 80 billion that the institute had previously promised for more personnel and more modern systems will be reversed. Less money will also go to fight poverty, a major theme of President Joe Biden.
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In return, there will be peace in this area for the next two years, Mujagic points out. ‘The fear was that you would have this circus again next year. But next year is election year in America and so people probably would have dug much deeper.’
The fact that the debt burden could increase over the next couple of years is therefore mostly a victory for the Democrats, he thinks. “It was mainly Republicans who paid close attention to an extension of up to a year. I have a feeling Democrats should start celebrating sooner.”
Indebtedness
However, the US federal government also needs to be careful, as the US debt burden only grows. Legally, Joe Biden’s administration has the ability to go from $31 trillion in debt to $35 trillion in debt. In the short term this is good news, as it removes a great deal of uncertainty in the financial markets, but the US debt problem is only getting worse. “Then you have to have a lot of economic growth, or high inflation, to keep the debt-to-GDP ratio as a percentage of the economy from growing with it.”
Mujagic doubts that Fitch’s assessment of the value of US credit is out of the question with the deal closing. “They said whether or not there is a deal, they will review America’s creditworthiness. If you have to play this game over and over, it won’t help your creditworthiness.’