America’s debt problem is getting bigger

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Raising the US debt ceiling isn’t the only positive side of the deal reached between Republicans and Democrats. According to macro-economist Edin Mujakic, the main advantage is that the debate will be off the table in the coming years. ‘Afraid that the circus will start again next year.’

It has been agreed that by January 1, 2025, the debt of the state could rise above the already fixed $ 31.4 trillion. The US House of Representatives and Senate have yet to rule on the deal. This is expected to happen during the week.

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Mujakic took into account that neither side would reach an agreement. ‘It has largely changed little in recent decades.’ But despite major differences, both parties still wanted to work together. “Today, however, many members are struggling with it,” says the macro-economist. That’s why he thinks this time is close.

For this, both parties have to pour water into wine. US media reports based on sources in the White House that the US tax authority, the Internal Revenue Service, will suffer significant losses as a result of this deal: 20 billion of the 80 billion dollars the agency had previously promised will be replaced by more modern systems for more employees. Less money is also going to fight poverty, a key theme of President Joe Biden.

In return, Mujakic asserts, there will be peace in the region for the next two years. ‘I was afraid that you would get this circus next year. But next year is an election year in the US, when people will dig even deeper.

He thinks allowing the debt burden to grow over the next two years is a major victory for the Democratic Party. “It was mainly the Republicans who pushed for the one-year extension. I feel like Democrats should start celebrating soon.

However, the U.S. federal government should also be careful because the U.S. debt burden is increasing. Legally, Joe Biden’s administration has the option of going from $31 trillion in debt to $35 trillion in debt.

This is good news in the short term because it removes a great deal of uncertainty in financial markets, but the US debt problem is only getting worse. ‘So you have to have a lot of economic growth or high inflation to prevent the debt ratio as a percentage of the economy from rising with it.’

Mujajic suspects that Fitch’s assessment of the U.S.’s credit worthiness may not have been successful once the deal was closed. “They’ve said they’ll review America’s creditworthiness whether there’s a deal or not. If you have to play this game over and over again, it’s not going to help your credit rating.’