On Friday, the US Treasury Department said the budget deficit reached an all-time high of $3 trillion in the first 11 months of the fiscal year. The announcement came a few days after China said it could abandon US Treasury bonds if tensions between the US and China continue to rise.
The deficit between October and August was exacerbated by coronavirus relief spending, more than doubling the all-time high deficit set in 2009, $1.37 trillion. During those 11 months, the federal government has sunk large amounts to get out of 2008. The financial crisis and the resulting recession.
More than $6 trillion was spent this fiscal year, and nearly $3 trillion was spent on COVID relief. That’s twice the $3 trillion in taxes. The imbalance is huge compared to last year’s $98.4 billion. And while the budget year ends on September 30, the Congressional Budget Office predicts the deficit will increase to $3 trillion. With that, US debt will soon surpass $26 trillion.
To make matters worse, China threatened to abandon US government bonds.
China began diversifying its U.S. Treasury securities holdings in 2013, reaching a high of $1.32 trillion. Currently, it is still the second highest in the United States, after about $1.2 trillion in Japan at $1 trillion.
last week Global TimesThe newspaper, owned by the People’s Daily, the official publication of the CCP, said the US’s “federal deficit increases the risk of default and weakens China’s assets as the Trump administration continues a fierce attack on China. We can cut it further down to $800 billion.” . “
economist Global Times The article hinted that the withdrawal could accelerate if the U.S. imposed additional sanctions on Beijing or if Trump stepped up his escalating investigation of Asian countries blaming the epidemic.
The rapid release of $200 billion in U.S. securities will upset global financial markets and drive domestic interest rates. However, the Chinese state media often threatens to signal that the CCP is not bound.
Shaun Breslin, professor of political and international studies at the University of Warwick in England, said: Newsweek Such a move “will have a lot of detrimental effects on China as well, and will greatly reduce the value of what they have left,” he said.
Newsweek I contacted the US Treasury Department for comment.
US Central Bank Chairman Jerome Powell told Washington in June that spending this year is certainly “unsustainable,” but given the current pandemic, it shouldn’t be focused on reducing the deficit.
Legislators are still deadlocked with another stimulus that provides Americans with desperately needed direct payments, extra unemployment benefits, and small business support. The Republican Party proposed a $500 billion “dry” bill this week, which was quickly blocked by Democrats seeking trillions of dollars more.
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