US Wedded to spending: Till debt do us part

Below is our translation of an analysis from RIA Novosti with commentary by Vince Dhimos.
 
While it is true that the economy of Venezuela melted down after Maduro came to power, mostly because of oil prices and US Sanctions, if the world applied the same yardstick to the US as the US does to Maduro, a case could be made for an invasion of the US by all threatened parties, including Japan, Europe, Russia, China, India, etc, and removal of the current government for threatening the US and world economy (more serious than the Venezuelan situation) with its unmanageable debt that will inevitably topple the US, the dollar and the world economy. This is because we are in a situation which the Russian author describes as “path-dependent.” The Russian equivalent can be rendered literally as “rut effect.”
 
Path dependence can be defined thusly:
 
Path dependence is the idea that decisions we are faced with depend on past knowledge trajectory and decisions made, and are thus limited by the current competence base. In other words, history matters for current decision-making situations and has a strong influence on strategic planning.
 
Applied to the debt, if the US is, as I suspect, path dependent, then all decisions will always be made as they have been for decades, disregarding the clear and present threat of the US debt level to the US economy. This threat is described in the translation below, based not on some specifically Russian reasoning but based on statements made by Western analysts and leaders.
 
One of the main drivers of this suicidal economic policy is the steadfast belief that America is threatened by the Chinese and Russians and must “keep up” with their advances in military hardware. In other words, the arms race is determining US policy. Thus, it is now thought in upper military circles that the US must, for example, develop hypersonic missiles to counter the Russian Kinzhal and Avangard. However, this thinking is flawed because having an equivalent offensive weapon does not in any way help defend against these missiles. Defence would require air defences. But the problem there is that it is intuitively impossible form a scientific standpoint, to develop any means to intercept a hypersonic missile travelling in an unpredictable zigzag trajectory. Therefore, the only possible response is to start negotiations right now. Instead, the government has chosen the opposite approach, withdrawing from the ABM and INF treaties. This too is part of the path-dependence since the US public itself, not only the arms makers and government, is opposed to showing weakness and demands that Russia be dealt with from a “position of strength” even though the US no longer credibly possesses such a position.
 
There can be no better illustration of US path-dependence, which boils down to fatalism, not an enviable position for any nation. This is why the debt issue will probably never be dealt with and the dollar is in for an inevitable collapse – either imminent or gradual.
 
https://ria.ru/20190214/1550817867.html
 
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Point of no return: US $22 trillion national debt spinning out of control
 
Natalia Dembinskaya.
 
MOSCOW, February 14 - RIA Novosti, Natalia Dembinskaya. The US national debt has exceeded $22 trillion - the highest level in the entire history of the country. Under Trump, growth is at a record pace of one trillion a year. American economists point out that the process will gain momentum, since government spending is not controlled at all. Will the United States cope with the situation and what will happen if the debt pyramid collapses?
 
Passed the baton
 
The previous owner of the White House, Barack Obama, began to actively increase US foreign debt. During the eight years of his presidency, the amount of the country's debt almost doubled - from 10.6 trillion dollars to 19.9 trillion. This was largely due to the fact that after the 2008 crisis, the congress and the Obama administration approved a stimulus package to support a rather weakened economy.
 
 
During the election campaign of 2016, Republican candidate Trump assured everyone that he would deal with the huge debts and liquidate them within eight years. So far, the opposite has happened. The national debt has been growing at the fastest pace in the last six years. In just two years, it has increased by almost two trillion dollars. And in the next two years, according to Bloomberg’s estimates, another 4.4 trillion more will be added.
 
Trump continues to make the best of a bad hand. At the end of last year, he once again promised that the United States would fully repay the national debt "by the end of his second presidential term." But economists say debt obligations will continue to grow, as the budget situation worsens.
 
Unmanageable debt
 
For the 2018th fiscal year, the US budget deficit grew by 17 percent and reached 779 billion dollars – that’s the most since 2012. According to the forecast of the budget management of the congress, this year it will grow by another 15.1 percent - to 897 billion dollars. And in 2022, it will exceed the trillion mark and will not fall below this level.
 
The US budget deficit has reached a new high since 2012
 
The deficit rose by 17 percent to $779 billion. Total spending rose by 127 billion, while revenues grew by only 14 billion.
 
To mitigate the deficit, Washington will have to borrow more money, and the debt burden risks becoming uncontrollable. Last summer, Republican Congressman Andy Biggs recalled that budgetary allocations should not exceed 700 billion dollars, and the current disproportionately high budget expenditures are fuel for the rising "debt fire."
 
“The country spends more than it receives, and is forced to borrow money. The structural deficit creates a “path-dependence effect. “I think we are heading for the abyss,” said the parliamentarian. The congressman estimates that the US authorities have no more than ten years to solve the problem.
 
However, the collapse may occur earlier - by 2026, the fund of the medical insurance program for the elderly (Medicare) will be exhausted, and social benefits to aging members of the numerous generation of baby boomers will have to be paid directly from the budget. This will bring down the entire US financial system. Otherwise, the social security system will collapse. Both scenarios threaten the country with a large-scale disaster.
 
Critical level
 
As noted by USA Today, the increased growth rate of public debt is largely due to last year's tax reform (it cost the US budget 1.5 trillion dollars), as well as an increase in defense spending.
 
Trump signed in December 2017 a bill creating the largest tax reform in US history - this was one of his key election promises. First of all, it eased the tax burden for businesses, corporations and enterprises, in particular, by drastically reducing the income tax from 35 percent to 21 percent.

Although the White House says that tax cuts will eventually pay off by accelerating economic growth, economists' forecasts do not confirm this. On the contrary, tax cuts will undermine economic growth, as they will lead to increased debt.
 
The fact is, investors view the growing amount of debt obligations as an increase in the tax burden on future generations.
 
The situation becomes especially dangerous when the ratio of debt level to gross domestic product approaches 77 percent. According to a World Bank study, each percentage point of debt growth above this mark takes away from the economy 1.7 percent of GDP.
 
Meanwhile, according to the Congressional Budget Office, the critical mark has already been passed. In 2018, total government debt amounted to 78 percent of the gross domestic product of the United States — the highest since 1950. Barring any changes, by 2028 it will be 96 percent.
 
The huge public debt will complicate the federal government's access to new loans and increased spending in the event of a new recession. Countries and markets around the world are already questioning the solvency of the US government.
 
One of the leading American financiers, the founder of the world's largest hedge fund Bridgewater Associates, billionaire Ray Daliot, believes the triple deficit - of budget, trade balance and current accounts - will soon finally scare away foreign investors from US Treasury bonds, provoking an explosive growth in their yields and a collapse of the dollar. And this is already a direct path to the financial crisis, which by its scale is capable of surpassing not only the upheavals of 2008, but also the Great Depression of the 1930s.
 
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More
https://www.theguardian.com/us-news/2018/nov/04/trump-economy-performance-reality-midterm-election-vote-2018
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