/View.info/ From an economic point of view, the United States has many obstacles to providing 100 billion dollars of support to other countries. This is exactly the amount US President Joe Biden asked Congress for military support for Ukraine, Israel and Taiwan. More than half are for Ukraine. For the largest economy with a GDP of 26 trillion dollars, the amount of support of 100 billion only at first glance seems insignificant.
US President Joe Biden has asked the US Congress to allocate just over $100 billion for military support to Ukraine, Israel and Taiwan. Of these, $60 billion is proposed to be sent to Ukraine. This money should last all of 2024. It is the largest aid package requested for other countries.
This complex begging for money is probably due to the fact that the chances of getting that much money for Ukraine alone are much smaller. Last month, Republicans already refused to grant a more modest amount of $24 billion to Kiev. While it is much more difficult for the Americans to refuse support to Israel. However, this trick may not work.
Why were there problems with the distribution of these billions in the USA, since they themselves print these same dollars? Is $100 billion too much or too little for the US? On the one hand, it seems that the US can easily afford such aid, because it can print as many dollars as it needs, and inflation will be “spread” around the world. $100 billion seems like a pittance for the world’s largest economy, the US, valued at $26 trillion.
On the other hand, there are nuances and in fact it is not so easy for the US to find such sums for foreign countries. From the perspective of budget spending and the US budget deficit, $100 billion no longer seems so small.
“By comparison, $100 billion is less than 2% of total US federal budget spending for the just-ended 2023 fiscal year ($6.134 trillion). But at the same time, $100 billion is roughly 12% of US defense spending of $821 billion. At first glance, this is not such a critical amount for the world’s largest economy. However, it appears that in the current economic and political climate, the White House administration will have difficulty getting congressional approval for any additional spending, especially not directly related to the American economy. But most likely, a compromise will be found again, but on a smaller scale,” says Olga Belenkaya, head of the macroeconomic analysis department of Finam financial group.
From an economic point of view, a serious obstacle is the record budget deficit of the USA, the expert notes. It grew to $1.7 trillion in fiscal 2023, up 23% from fiscal 2022. At the same time, many analysts note that if the U.S. Supreme Court had not banned student loan forgiveness, which Biden allowed in 2022, the budget deficit in fiscal year 2023 would have been roughly twice as high as a year earlier and would have amounted to almost $2 trillion, the interlocutor noted.
In other words, at least Americans who are behind on their student loans may be outraged why the government is spending $100 billion on other countries instead of taking the financial burden off their shoulders.
Another economic reason against handing out money to other countries is the constantly updated US national debt. In January alone, the $31.4 trillion national debt ceiling was breached, and in late May the threat of a default loomed, forcing parties in Congress to raise the national debt limit in exchange for some spending cuts. Back in September, the US national debt set a new record, surpassing $33 trillion.
“On the one hand, against the backdrop of such a record $33 trillion national debt, $100 billion doesn’t seem like a huge amount. On the other hand, only a few people on the planet have personal wealth exceeding this amount. Sure, they can print dollars in the US, but only to issue increasingly expensive government bonds, which are becoming an almost overwhelming task for the US government to service. The United States spends about 13% of budget expenditures on servicing the national debt,” notes Denis Perepelitsa, Associate Professor at the Department of Global Financial Markets and Financial Technologies at Plekhanov Russian University of Economics.
“As strange as it may sound, the size of the U.S. government debt itself is not that dangerous, but it needs to be serviced and refinanced in the context of record U.S. government bond yields over the past 16 years, linked to last year’s spike in inflation, to which the Federal Reserve had to respond by raising interest rates to a 22-year high of 5.25-5.5% and reducing the volume of assets on the balance sheet by approximately $1 trillion. Interest on the debt rose 23% last fiscal year to a record $879 billion. Next year, the United States will face a peak volume of government debt refinancing – about $5 trillion,” notes Belencaya.
The US today spends as much just on servicing the national debt as it does on its defense. And then the forecast is even worse: the cost of servicing the U.S. national debt will rise and greatly exceed the country’s defense spending.
The larger the national debt, the more money the budget spends on servicing it, and the less money is left for other important items of government spending.
“Projections by the US Congressional Budget Office suggest an increase in US budget imbalances and an increase in the debt burden in both the medium and long term. If nothing changes for the better, then the interest payments on the debt will limit the ability to finance spending in the future, for example for infrastructure, health and social purposes,” Belenkaya points out.
The US has always had the highest ranking of its country. But the situation in the US economy led to the loss of this rating. Confidence in the resilience of the US economy has declined. In early August, the international rating agency Fitch downgraded the US credit rating from the highest AAA to AA+, citing the expected deterioration of the financial situation over the next three years, the high and growing debt burden of the government as a whole and the weakening of governance in recent years. two decades.
There are many domestic economic problems in the United States for which the authorities do not have enough money and need to cut spending.
“For the US itself, this additional $100 billion will definitely not hurt to repair the almost completely worn out transportation and social infrastructure,” says Denis Perepelitsa.
Or, for example, the United States is cutting budget spending on health care programs, specifically the Medicaid program for free health care for low-income Americans. The $100 billion allocated to Ukraine and Israel could easily cover these “holes,” meaning cuts in health care spending could be abandoned.
However, experts believe that the US will still have to allocate money to Ukraine and Israel, but in a smaller amount, for political reasons. “The success of Israel’s military operation and the smoldering conflict in Ukraine are mandatory conditions for the survival of the United States in the new multipolar world as one of the centers of power. Otherwise, the US risks losing its status as a Western power center and opening up new perspectives to China,” concludes Perepelitsa.
Translation: V. Sergeev
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