Record deficit of US budget: is there any threat to investors?
US news, Washington. During the recent years US federal budget has been facing record deficit. Summing up the results of the expiring financial year, American Treasury has calculated that in 2011 the budget deficit amounted to 1 trillion 299 billion dollars. It has generally become the second worst result – it was worse only in 2009.
Percentagewise, budget deficit in the expiring year amounted to 8.7% of GDP, whereas in 2010 it amounted to 9.0 % of GDP, and in 2009 – 10.0 % of GDP. In money terms, these amount to the following: 2009 – 1 trillion 416 billion dollars, 2010 – 1 trillion 294 billion dollars, and 2011 – 1 trillion 299 billion dollars.
However, US government managed to ease the situation to some extent, as the budget deficit could have broken all anti-records – the government was expecting to face the deficit of 1 trillion 650 billion dollars during this year.
In 2011 revenues of the federal budget has amounted to 2 trillion 302 billion dollars at the expenditure of 3 trillion 601 billion dollars. To compare, in 2010 revenues of US budget amounted to 2 trillion 161 billion dollars, expenditures – to 3 trillion 455 billion dollars. Consequently, despite the fact that Washington has managed to increase profit and lower expenditures, US budget gap is record high.
At the end of previous month, while making preliminary calculations the Ways and Means Committee predicted that federal budget deficit was not supposed to exceed $1.3 trillion, which is equal to the final data.
According to the experts of , state expenditures are considerably influenced by unemployment benefit programs, expenditures on military department, social benefits and pension payments, large debt servicing and Medicare, and medical insurance program, which was suggested to be closed during discussing the measures to lower budget deficit.
During the first half of 2011 the USA was hit by political crisis, as a result of which the country has appeared at the point of technical default. The members of the parliament did not want to make a concession, the question of defining the maximum of the national debt, as a result, Washington could appear in the situation when it would unable to perform its debt obligations.
On the eve of announcing the technical default the government has come to the compromise with Congressmen to adopt the necessary amendments and increase the maximum of the national debt. However, political games had their results in the USA. In several months bringing in market fluctuations has lowered Washington credit rating.
Standard and Poor’s, one of the leading international credit rating agencies, has made an unprecedented step to lower US rating from the maximum of “AAA” to “АА+”. Moreover, according to “negative” predictions, the rating can further decline in the nearest future.
Банкирыиз JPMorgan Chase bankers have calculated that such rating decline will add up to hundred million dollars to the service US debt obligations.
According to the analytics of leading foreign broker FX Clearing, even when credit trust rating was at the top level, last year Washington had to pay over 400 billion dollars to service the large national debt. Rating downgrade by one step will increase expenditures by a quarter.
The country’s rating downgrade will have a negative influence on domestic market. It will result in rising credit interest rates, including mortgage, purchases of cars, servicing of credit cards, etc.
S&P has previously warned about possible downgrade of American credit rating if the government does not take effective measures to lower the national debt and the budget deficit.
As soon as the “sentence” was pronounced, Washington accused the agency in using false accounting treatment, claiming than its analytics have made a 2-trillion mistake. Moreover, the government has initiated proceedings against the agency in general and a number of its workers in particular. To be more exact, S&P has been accused of insider dealing and bank overrating on the eve of financial crisis 3 years ago.
Last week Standard & Poor’s decided to lower long-term credit rating of Spain from “АА” to one-step lower position “АА-”, followed by “negative” predictions.
International rating agencies have previously warned about rating vulnerability in the majority of countries in the Eurozone.
