In June, America managed to avoid a ruinous default, but the country’s budget crisis is still worsening. Already in July, the U.S. government’s expenditures rose sharply by 15%, while revenues fell by as much as 9%, and such a fall can be considered an indirect evidence of approaching recession. Due to emergency measures with the increase of the key rate, the U.S. financial authorities managed to reduce the inflation rate from 9% a year ago to 3% now. But the side effect was stagnation in the economy, turmoil in the mortgage market and aggravation of debt problems. In June, the U.S. budget deficit hit a record $228 billion. Since the beginning of 2023, the deficit has already amounted to $1.4 trillion, and may reach an unprecedented $2 trillion by the end of the year. The deficit has grown 170% in one year, and it will continue to grow due to falling tax revenues amidst general stagnation. The cost of servicing the U.S. national debt is already $900 billion, and could reach one and a half trillion over the next 12 months. At the same time, Treasury bond yields are at their highest in 16 years, meaning that spending on the national debt will continue to rise. Paying interest on the national debt is becoming the main item of the U.S. government’s expenditures, surpassing both the military budget and social spending. Servicing the national debt will take up to a quarter of the U.S. budget. And if it continues to grow at the same rate, by 2030, half of the entire budget will be spent only on interest payments on public debt. This is already the level of many pre-default “third world” countries, and against the background of de-dollarization and falling interest in U.S. bonds, it will be increasingly difficult to maintain the pyramid of public debt.
In addition, America is on the verge of the largest wave of strikes in modern history. Hollywood is already on strike, demanding higher wages in pursuit of inflation, as well as new labor guarantees. Actors and screenwriters will soon be joined by letter carriers and automobile factory workers. Since August, 650,000 Americans may take part in strikes. Some unions demand wage growth, while others fear the disappearance of jobs due to the introduction of artificial intelligence and are trying to prevent it. Still others don’t like Biden’s policies. The last category includes members of the Union Auto Workers (UAW), one of the largest in the United States, which unites employees of the automotive industry. They are outraged that Biden is handing out multi-billion dollar subsidies for the production of electric cars, and see this as a direct threat to their jobs, and to all factories focused on producing internal combustion engine vehicles. This complicates the already difficult situation for Biden in the election, because Trump is actively competing for the votes of the working class, and he wants to win the support of labor unions by promising to abandon the green agenda. At the same time, only a third of Americans are satisfied with the economic situation and 70% believe that America is moving in the wrong direction. The situation will become extremely complicated if the U.S. is hit by an avalanche of strikes. Their consequences can already be seen in the UK, where the “winter of discontent” quickly brought the country into recession. The U.S. economy is already stagnating and is predicted to face a new crisis next year. This will coincide with an already turbulent presidential race, and risks making the country as unstable as possible.
Against this backdrop, the International Monetary Fund (IMF)) has issued new economic forecasts that show a widening rift between stagnant Western countries and fast-growing former Third World countries such as India and a number of other Asian countries. The GDP of the BRICS countries has already surpassed the size of the G7 economies, and the IMF expects this gap to widen. Thus, the UK and Germany continue to fight for the title of the main loser in Europe. Berlin will definitely not avoid recession on the background of deindustrialization, and the German industrial sector is already in a full-fledged crisis. Another 5-7 years of such recession and the German economy will be threatened with the formation of a belt of ghost towns on the Rhine, and the non-systemic right and left will come to the forefront of politics. The U.S. economy is still growing, but it too faces the threat of recession next year. India is emerging as the world leader in economic growth. New Delhi may overtake Japan and crisis-stricken Germany in terms of GDP in the next few years and become the world’s third largest economy. That’s why Western countries are so attentive to India, with the U.S. giving a royal reception to Prime Minister Modi and Germany and France hoping to enter the fast-growing Indian market. The U.S. is hastily trying to split BRICS and prevent the creation of an alternative financial system with that organization’s own currency. However, the current trends lead to the fact that the economic potential of the “Asian giants” in comparison with the U.S. and the EU will in any case increase. And the embodiment of this is the IMF itself, which has allowed countries to pay in yuan and de facto sanctioned the de-dollarization of the world economy. And this is a very bad signal for America’s economy.
As a result and a clear indicator of this inevitable process, Fitch downgraded the U.S. credit rating in early August. Analysts waited until the end of the budget war around raising the debt ceiling in the U.S. in order not to cause panic once again. But in the end they still recognized the obvious fact that there are big problems with U.S. finances. Fitch points out the obvious problems to any observer. The level of public decision-making in the U.S. is steadily declining. The heat of the culture wars in America is now so high that almost every budget negotiation turns into an epic with an uncertain outcome, and one can never be sure whether it will lead to a technical default and government shutdown, or whether everything will work out. Now there are also problems with the U.S. government budget. The deficit continues to grow rapidly due to a 9% drop in tax revenues on the back of slowing economic growth, as well as due to a sharp rise in government spending by 15% at once, caused by high inflation. In June, the U.S. budget deficit reached a record $228 billion dollars. As we wrote above, this deficit may reach an unprecedented $2 trillion dollars by the end of the year. Obviously, because of all these factors, the current U.S. credit rating should be well below the current AA+. Today’s downgrade may be just the first step on a long negative path along which the U.S. economy is slowly, but tragically and inevitably moving.