According to Agence France-Presse in Washington, D.C. on October 20th, in the past year, the US budget deficit has skyrocketed, while the tax payments made by businesses and households have decreased, the cost of debt has continued to increase. This puts incumbent US President Biden, who is still one year away from the presidential election, in a difficult situation.
The US Treasury announced on the 20th that the budget deficit for the 2023 fiscal year ending September 30th has increased by 23% compared to the previous year, reaching $1.695 trillion. Federal spending decreased by 2% year-on-year, but fiscal revenue decreased by 9%. The main reason is that not only have businesses reduced their taxes, but also household taxes, the primary source of federal income, have decreased.
In terms of expenditure, the federal government has had enough of the Fed's interest rate hike in the 2023 fiscal year, and its debt cost is much higher than the previous fiscal year. The interest expense of the US Treasury in fiscal year 2023 was $879 billion, an increase of $162 billion compared to fiscal year 2022.
According to a report on the website of the Spanish daily "Public" on October 15th, at the end of September this year, the closest member of Congress to former US President Trump sparked a civil war within the Republican Party, ultimately ending with the "political beheading" of Republican Speaker McCarthy. This situation has fueled the US economy, which is highly susceptible to the risk of a federal government shutdown.
The wounds in the American system have not yet been healed, but they have managed to delay the government's shutdown by a month. But behind this humiliation lies a threat that may push the US economy into the abyss.
Biden expressed "extreme disgust" at being comprehensively offended by the so-called Trump Doctrine (the impeachment process against Biden will take place in the first half of 2024, as his son Hunter is suspected of violating commercial transactions). Not long before McCarthy suddenly resigned from his highest position in the House of Representatives, he launched an impeachment investigation into Biden.
However, Biden called on both Democrats and Republicans to remain rational in extreme situations to reach another agreement, similar to the debt ceiling agreement pushed by the US Treasury.
At a time of new hostilities in the Middle East, the Republican approach is undoubtedly fueling the US economy, stock market environment, and political chess game. But where are the risks of Biden economics, a federal strategy aimed at promoting production and modernizing the US economic system?
1. The Federal Reserve closely monitors the risk of government shutdown
Morgan Stanley Chief US Economist Ellen Zentner emphasized in a report to investors that the Federal Reserve is closely monitoring the risk of government shutdown. Zenithner believes that if the government shuts down, the US monetary authorities will immediately stop raising interest rates.
Zeng Turner stated that a federal government shutdown may prevent policymakers from obtaining important economic data necessary for decision-making, which provided support for the Federal Reserve to maintain the status quo at its November interest rate meeting. Zengtner believes that "given the uncertainty caused by political conflicts, it is not appropriate for central banks to take action". If reliable information is not available, let alone the situation.
2. The US economy is on the brink of deficit
Larry Adam, Chief Investment Officer of Raymond James Partnership, an asset management company, stated that some institutions' analyses tend to lean towards a short-term recession in the US economy rather than a controlled landing. Adam listed four reasons.
Firstly, the so-called employment creation indicators have begun to decline. Secondly, consumer spending has once again been suppressed, as evidenced by an increase in student loan applications and a decrease in tourism demand. People are struggling to cope with the rise in electricity and natural gas prices. Thirdly, the demand for mortgage loans and personal financing has decreased, and the upper limit on credit card consumption has been tightened. Finally, the threat of a government shutdown has added reason to the wave of strikes sweeping across the country, especially in the automotive industry. Major automobile manufacturers are increasing profits without paying attention to employee salary requirements.
3. The 'Perfect Storm' is Coming Soon
In a country where the economy mainly relies on domestic demand, the degree of consumption contraction will be a thermometer to measure the decline in US production. The Federal Reserve's "protective cover" has been lifted, and even worse, it has admitted that as of the end of the second quarter, the national credit card debt has exceeded $1 trillion, setting a new historical high.
Economist David Rosenberg believes that at current interest rates, a recession will officially emerge in no more than six months.