The passage of a tax-cut bill will further aggravate the U.S. federal government's debt crisis by widening the fiscal deficit and increasing reliance on debt issuance, potentially pushing the country closer to dual threats of economic depression and inflation, said experts.
The Republican-controlled U.S. House of Representatives on Thursday narrowly passed a sweeping tax and spending bill, despite prior warnings from budget groups that the legislation would significantly increase federal debt.
Such move came in the wake that Moody's Ratings slashed U.S. long-term issuer and senior unsecured ratings to Aa1 from Aaa citing rising government debt and interest payment ratios.
According to the latest data from the Treasury Department, the U.S. national debt has surpassed 36.2 trillion dollars.
Analysts point out that the United States is facing a structural dilemma rooted in the weakening credibility of the U.S. dollar and a growing debt crisis.
Prolonged fiscal deficits have disrupted the supply-demand balance of Treasury bonds. At the same time, the growing disconnect between financial activity and real economy has further accelerated the erosion of trust in the U.S. financial system. "The United States is currently facing numerous challenges in maintaining its financial hegemony, among which the status and credibility of the U.S. dollar stand out as structural issues that are irresolvable. Why is that? Because the issuance of the dollar is essentially backed by U.S. Treasury bonds. At present, the U.S. is grappling with a severe fiscal crisis, characterized by a long-term trend where the supply of government bonds significantly exceeds demand. This imbalance inevitably leads to rising yields. Over the years, the U.S. government and its financial sector have been continuously depleting the credit of the dollar, although the extent of this damage remains difficult to quantify," said Wei Liang, deputy director of the Institute of Macroeconomics and Strategy at the China Institute of Modern International Relations.
Cui Fan, a professor at the University of International Business and Economics, added that the United States faces a dilemma when it comes to managing its debt ceiling.
"Under current circumstances, the United States faces a critical dilemma over its national debt. On the one hand, if the debt ceiling is not raised, the country risks slipping into an economic depression, potentially triggering debt cliff. On the other hand, if the debt ceiling is raised, the debt burden would grow even heavier. To manage this, the government might resort to printing more money to buy up the bonds, a move that could fuel hyperinflation and amount to a de facto default. In such a scenario, the risks surrounding U.S. Treasury bonds would escalate further, leaving the country trapped between the dual threats of economic depression and inflation. In fact, the two threats exist simultaneously," said Cui.
Tax-cut bill to worsen US debt crisis, intensify risks of economic depression, hyperinflation: experts
Tax-cut bill to worsen US debt crisis, intensify risks of economic depression, hyperinflation: experts
