Reference News Network reported on May 23rd that according to a report from Fortune Magazine's website on May 20th, institutions stated that due to the collapse of confidence in debt management, the US economy is experiencing "death by a thousand cuts." The following is the translated content:

Economists have long criticized politicians for insufficient efforts and delayed actions in cutting the US national debt. However, analysts now warn that the adverse effects of this issue are beginning to emerge, and the once unshakable confidence in America's fiscal future is gradually eroding.

The current size of US national debt has exceeded $36.2 trillion, becoming an increasingly significant topic of concern for economists. They worry that as the nation's debt burden increases along with the interest payments required for the debt, economic growth will not be sufficient to sustain fiscal expenditures.

Last week, Moody's downgraded the US sovereign credit rating from Aaa to Aa1, reflecting this concern. Moody's explained: "We acknowledge that the US still possesses significant economic and financial advantages, but we believe these advantages can no longer fully offset the decline in fiscal indicators."

Despite Treasury Secretary Scott Bessen's insistence that markets should not overreact to this news, the downgrade has become another thorny issue regarding the US fiscal health.

In a report, Deutsche Bank's Jim Reid said: "Regarding the US fiscal situation, yesterday felt like we were experiencing 'death by a thousand cuts.' It's hard to say how many cuts we've already endured, but even if there was an initial market sell-off followed by a rebound yesterday, we may be closer to having endured 'a thousand cuts' than just one."

He said: "Ultimately, the loss of the last AAA rating for the US late Friday evening won't change things immediately, but it will allow bad fiscal news to accumulate bit by bit, eventually impacting the dam of debt sustainability."

President Trump and his cabinet are not ignoring the issue of national debt. Trump once mentioned using funds from his "golden visa" plan to repay debts. The most important message from the Department of Government Efficiency is to improve efficiency and cut costs.

However, Trump maintains a delicate balance in fulfilling campaign promises: cutting costs while reducing taxes, which in turn reduces the revenue needed to rebalance government spending.

Currently, the Trump administration is pushing Congress to pass this "big and beautiful" tax cut bill. Its contents include extending the 2017 tax cuts, which are set to expire at the end of 2025, and adding some eye-catching provisions such as reducing taxes related to tips and overtime pay.

The Trump administration believes that this bill will actually help rebalance the ratio of debt to GDP. To achieve this ratio balance, the government has two options: reduce debt or increase GDP.

Officials state that extending the tax cuts will achieve the latter, estimating that the short-term actual GDP will increase by 3.3% to 3.8%, and the long-term actual GDP will increase by 2.6% to 3.2%.

The Congressional Budget Office holds a different view. This nonpartisan analysis agency stated in a report in April that if the 2017 tax cut provisions are extended, leading to reduced tax revenues, and no other fiscal policy adjustments are made, by 2055 public debt will reach 220% of GDP. This figure is 63 percentage points higher than the long-term baseline forecast without the implementation of tax cuts.

If bond buyers lose confidence in America's ability to repay its debts, the US has another card to play, namely the Federal Reserve.

The Federal Reserve could adopt quantitative easing policies to lower long-term interest rates, making it easier for the government to continue borrowing, but this move may provoke controversy.

Although the bond market reacted calmly to Moody's downgrade of the US sovereign credit rating, UBS Group stated that if market volatility increases in the future, the Federal Reserve may take action. (Translated by Liu Yunbo)

Original source: https://www.toutiao.com/article/7507633034196173353/

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