Recently, when the American Treasury Secretary sent a letter to Congress requesting more financial borrowing power for the economy, speculation that the American economy might not be in the best shape quickly spread across the globe. According to reports, the US economy has a financial debt of 31.46 trillion these days. The Treasury Secretary has given the US Congress a deadline of June 1 in this regard and has said very clearly that if the limit and capacity of the US to take financial debt are not increased, then after June 1, it will be unable to pay the country’s financial expenses. This shows that America is rapidly moving towards a financial liquidity or cash crisis. This is creating more trouble because politics on this issue is also at its peak in the US, and there are deep differences between both Democrats and Republicans regarding increasing debt ceiling .
During World War I, a law was passed in the US that required financial debt in the economy to not exceed a certain value. Even today, the American economy is governed by the same law that is more than a century old. It is also evident that raising the limit on financial debt is not new in the US. Since 1960, the limit on financial debt has been increased about 78 times. Last time this limit was set at $ 31.40 trillion in the year 2021, the US economy reached this limit in January this year. Of course, this time also, the capacity of financial debt in America will increase, but this situation is certainly very worrying for the world’s largest economic superpower. The intention of increasing the capacity of financial credit is very clear to all. This leads to higher financial expenses than financial income in the economy, resulting in a state of strong financial discipline and potentially having worrying consequences in the future.
It is very surprising that America, the world’s largest economic superpower, is trapped in a huge financial debt these days. Compared to statistics, America’s current financial debt is more than 10 times India’s GDP, while India is the fifth largest economy in the world. By the year 2000, the debt of the US economy was $9.7 trillion, which almost doubled in 2010 after 10 years. Then, in the next 10 years, it increased by more than 70 percent to $30.73 trillion in the year 2020.Why does the capacity for financial debt in the US continue to grow? If research is conducted on this matter, it becomes evident that America has experienced economic crises at the domestic level in every decade. The slowdown caused by the real estate sector in 2005 was one of the reasons that put the US on the verge of bankruptcy around 2011. The Corona epidemic in the year 2020 has put America in this economic crisis today. It should be noted that during the corona, the amount of financial liquidity was kept at a very high level to maintain per capita purchasing capacity in the US, whose consequences are now being seen in the American economy. On the other hand, the soaring inflation that has persisted for some time has severely impacted the United States. Furthermore, the frequent changes in interest rate policies implemented by the US Federal Reserve have had a highly adverse impact on the US economy at a global level.
It is certain that the US economy will be heading towards recession due to the adverse effects of financial debt. The Treasury Secretary has also warned that if the capacity of financial debt is not increased, 6 to 8 million people will lose their jobs, GDP will fall by 4 to 5 percent, government employees will not be given more financial facilities, etc. A survey conducted by the prestigious University of Michigan in the US in May 2023 has also revealed a very worrying situation. At the domestic level, economic transactions of American consumers saw a decline of 9 percent, the general public had a negative view of the country’s economy by 5 percent, and consumers had a negative growth of 11 percent compared to what was expected of the economy. This report makes it clear that there is a lot of turmoil in the minds of American citizens and consumers these days regarding the economy. On this side, it is also necessary to mention that in the past, the central banks of all major countries suddenly increased the purchase of gold, which also clearly means that gold can be used as an alternative to the US dollar in emergency situations in global transactions.
The current economic situation in the US will certainly have a huge impact on India, as it is the second-largest trading partner in international trade after the European Union. India’s IT sector exports the majority to the US, and statistics show that India’s IT exports have seen a decline of more than 10 percent in the last few years. Apart from this, India’s economy in the fields of textiles, chemicals, and jewellery will also be greatly affected by American transactions in the coming time. It is also feared that the control of US interest policies will continue in the coming time, as a result of which the Indian rupee will weaken against the US dollar, due to which imports will also be affected, and consequently inflation in the domestic market will also increase. Its side effects can also be seen in India’s stock market.
Dr. P.S. Vohra , Academician, Financial Thinker & Newspaper Columnist , Views are personal
