Very Important Debtor
Published in Rossiyskaya Gazeta
(Russia) on 18 January 2011
by Tatiana Zycova (link to original)
(Russia) on 18 January 2011
by Tatiana Zycova (link to original)
Translated from
by Olga Azarian.
Edited by Mark DeLucas.
American national debt has reached a historical record: $14.7 trillion. It was reported yesterday by a news wire referring to U.S. Treasury data.
It means that every American citizen, including babies and retirees, owes the world $45,300.
By the way, the national debt grows very fast. So far, during the week between January 4 and 13, it has jumped 14 percent, or $1.717 trillion.
“The situation is not critical and can be explained,” notes Jacob Mirkin, Director of the International Capital Markets Department at the Institute of Economics and International Relations of the Russian Academy of Science.
“If in 2000 the ratio between the national deficit and the U.S. GDP (Gross Domestic Product) was equal to 55 percent, in 2010 this indicator grew to 100 percent. For comparison, in Greece, which “fell” into debt crisis in 2010, the given indicator was 77 percent,” informs the scientist. However, according to Mirkin, the national debt is not as important as its relation to the economy’s volume, including the global economy. As a reminder, the United States today provides one quarter of the world gross product. The U.S., according to Mirkin, is in big debt because it is the main emitter of the world’s reserve currency; therefore, the national debt of the country can jump higher than in other countries in accordance with demand for the U.S. dollar. “Behind the growth of the national debt, there is the same mechanism that has worked before the 2007-2008 crisis and is working now,” clarifies Mirkin. “The U.S. emits dollars; exporters, including Russia, China and Japan, accumulate these dollars in their international reserves and give them back to the U.S. to cover its debt.” In other words, at the expense of a dollar being a reserve currency, and as long as the U.S. continues to be the biggest emitter of dollars and the center of economic and political influence, America and its citizens will continue to be able to live on credit.
“You deliver money — liquidity — and in exchange you have the ability to receive exports from developing countries and live on credit,” adds Mirkin. By the way, U.S. Treasury Secretary Timothy Geithner considers a raise of the federal debt limit, which now is $14.3 trillion, as one of the necessary measures against growing debt. According to Geithner, this limit could be exceeded by the middle of May. Some American congressmen already “peer” into 2035. They think that due to the negative present scenario, American national debt could exceed 185 percent of GDP.
“This is not even futurology, but plain crystal ball gazing, especially when the financial system is so volatile,” said Mirkin, refusing to comment on the extraordinary prognosis. According to him, by 2035, the alignment of forces in the world could have changed. Moreover, the contours of the future multipolar global financial model — as other countries try to take advantage of America’s currency emission — are already visible. Even before the crisis, the dollar had fallen 25-30 percent against the euro. Mirkin assumes that before 2020, a third reserve currency will have the chance to conquer a part of the market — that of Asia’s.
However, the expert warns, Russia should be careful when discussing the prospects of a weak dollar. A weak dollar is very beneficial to Russia because it provides, first of all, high prices for oil. “When we lose, investing in dollar assets, we repeatedly win because the prices of our products rise,” Mirkin concludes.
It means that every American citizen, including babies and retirees, owes the world $45,300.
By the way, the national debt grows very fast. So far, during the week between January 4 and 13, it has jumped 14 percent, or $1.717 trillion.
“The situation is not critical and can be explained,” notes Jacob Mirkin, Director of the International Capital Markets Department at the Institute of Economics and International Relations of the Russian Academy of Science.
“If in 2000 the ratio between the national deficit and the U.S. GDP (Gross Domestic Product) was equal to 55 percent, in 2010 this indicator grew to 100 percent. For comparison, in Greece, which “fell” into debt crisis in 2010, the given indicator was 77 percent,” informs the scientist. However, according to Mirkin, the national debt is not as important as its relation to the economy’s volume, including the global economy. As a reminder, the United States today provides one quarter of the world gross product. The U.S., according to Mirkin, is in big debt because it is the main emitter of the world’s reserve currency; therefore, the national debt of the country can jump higher than in other countries in accordance with demand for the U.S. dollar. “Behind the growth of the national debt, there is the same mechanism that has worked before the 2007-2008 crisis and is working now,” clarifies Mirkin. “The U.S. emits dollars; exporters, including Russia, China and Japan, accumulate these dollars in their international reserves and give them back to the U.S. to cover its debt.” In other words, at the expense of a dollar being a reserve currency, and as long as the U.S. continues to be the biggest emitter of dollars and the center of economic and political influence, America and its citizens will continue to be able to live on credit.
“You deliver money — liquidity — and in exchange you have the ability to receive exports from developing countries and live on credit,” adds Mirkin. By the way, U.S. Treasury Secretary Timothy Geithner considers a raise of the federal debt limit, which now is $14.3 trillion, as one of the necessary measures against growing debt. According to Geithner, this limit could be exceeded by the middle of May. Some American congressmen already “peer” into 2035. They think that due to the negative present scenario, American national debt could exceed 185 percent of GDP.
“This is not even futurology, but plain crystal ball gazing, especially when the financial system is so volatile,” said Mirkin, refusing to comment on the extraordinary prognosis. According to him, by 2035, the alignment of forces in the world could have changed. Moreover, the contours of the future multipolar global financial model — as other countries try to take advantage of America’s currency emission — are already visible. Even before the crisis, the dollar had fallen 25-30 percent against the euro. Mirkin assumes that before 2020, a third reserve currency will have the chance to conquer a part of the market — that of Asia’s.
However, the expert warns, Russia should be careful when discussing the prospects of a weak dollar. A weak dollar is very beneficial to Russia because it provides, first of all, high prices for oil. “When we lose, investing in dollar assets, we repeatedly win because the prices of our products rise,” Mirkin concludes.