Growing budget deficit and national debt: estimates, problems, risks

The article analyzes the structure of the US federal budget, the main sources of revenues, expenditures (annually revised discretionary spendings, mandatory financing of the main social and a number of critical areas of government activity, interest debt payments), factors affecting their dynamics. A special place is occupied by the analysis of the national (sovereign) debt of the United States, which includes two types of debt: the government’s debt to buyers of its securities (American individuals and legal entities, the Federal Reserve System, international investors, foreign governments) and the so-called intragovernmental debt. The article raises the question of where the "red line" is when the growing debt becomes dangerous for the United States. However, the article lists factors that mitigate the sovereign debt problem for the United States. Much attention is paid to the challenges that the administration of J. Biden and the Congress of the current and future convocations will have to face. In particular, in the short term, this is the need to reduce the budget deficit, to extend a number of social programs that are about to expire, but above all to resolve the debt ceiling issues. The paradoxes of decision-making in the budget process concerning the debt ceiling are considered. The points of view of experts are presented, arguing the need for refusal and preservation of the legislative codification of the debt ceiling. In the long term, the United States will face challenges such as a growing debt burden, the need to reform the budgetary decision-making process. The Congress will have to worry about how to defuse the time bomb laid down in a number of mandatory budget programs.

Behind the Scenes

Chapter 5 looks at the behind-the-scenes maneuvering by senators on three bills debated and voted on in 2013: the debt-ceiling bill known commonly as “No Budget, No Pay,” the “Gang of Eight” comprehensive immigration reform bill, and an agriculture bill. It looks at interview data collected in 2013 from legislative directors for nineteen senators examining responses to how much time and effort legislators put into each bill and their overall satisfaction of the outcome. While conventional wisdom would expect to see moderates prioritize the No Budget No Pay Act and the immigration bill, spending most of their time and resources on these bills and report satisfaction with each bill’s final content and legislative process, I find that on average, moderate respondents were less likely to report satisfaction with the overall outcome of the legislative process, despite the time and effort put into the process.

Behind the Scenes

Chapter 6 looks at the behind-the-scenes influence senators exerted on three bills debated and voted on in 2013: the debt-ceiling bill known commonly as “No Budget, No Pay,” the “Gang of Eight” comprehensive immigration reform bill, and an agriculture bill. It looks at interview data collected in 2013 from legislative directors for nineteen senators examining responses that answer the question of whether back-room dealing is how moderates use their power. That is to say, do legislators consider moderate preferences in an effort to build a large enough coalition to pass legislation? Interview data suggest that while leaders do try to protect moderates, coalitions are built with the opposing side, not with centrists. Indeed, legislators rarely view moderates as the most powerful senators in the Senate, and are seldom lobbied for their vote.

Debt ceiling deal defers default temporarily

Headline UNITED STATES: Debt ceiling deal

Shutdown avoided but Congress must raise debt ceiling

Headline UNITED STATES: Government shutdown averted

Virus impact will make Bulgaria keener to adopt euro

Significance The country’s successful two-month lockdown ended on May 13. Bulgaria has raised its debt ceiling fivefold for this year and plans to sell debt on international markets, expecting the budget to swing from balance to a 3% of GDP deficit. Impacts The 14-day quarantine at the Greek and Serbian borders will end for business and other travellers from June 1 and for tourists from June 15. Many Bulgarians approve the government’s crisis management, few attending the anti-lockdown protest organised by a fringe party on May 14. The crisis is likely to prompt a reform in the way Bulgaria’s healthcare system is financed.

East African railway plan faces familiar impediments

Subject East African rail infrastructure plans. Significance Tanzania, Burundi and the Democratic Republic of the Congo (DRC) in December agreed to build a 6.5-billion-dollar standard-gauge railway (SGR) line connecting the three countries through Tanzania’s ‘Central Corridor’. The agreement aims to expand the scope of a massive planned rail network spanning much of East Africa. However, this project, already over a decade in the making, has faced repeated setbacks, especially in Kenya’s ‘Northern Corridor’. Impacts As infrastructure spending slows amid tightening finance conditions, East Africa will struggle to sustain its current fast growth. Although Tanzania’s debt is currently manageable, it is growing rapidly; new SGR borrowing would put further pressure on the debt ceiling. Construction of a major new Mombasa-Nairobi highway will further reduce incentives to use Kenya’s railways for freight.

Prospects for US politics to end-2019

Subject Prospects for US politics to end-2019. Significance As President Donald Trump continues his commemorative visit to Europe today, back home in Washington speculation is growing fast over whether congressional Democrats will impeach him and whether they can unseat him in 2020. Serious policymaking hurdles also await attention, including raising the country’s debt ceiling and spending caps in time for the new fiscal year on October 1.

On the Failure to Reach the Optimal Government Debt Ceiling

We develop a government debt management model to study the optimal debt ceiling when the ability of the government to generate primary surpluses to reduce the debt ratio is limited. We succeed in finding a solution for the optimal debt ceiling. We study the conditions under which a country is not able to reduce its debt ratio to reach its optimal debt ceiling, even in the long run. In addition, this model with bounded intervention is consistent with the fact that, in reality, countries that succeed in reducing their debt ratio do not do so immediately, but over some period of time. To the best of our knowledge, this is the first theoretical model on the debt ceiling that accounts for bounded interventions.

Extreme Reversion Points and Party Leadership from 2011 through 2016

When a majority party works on normal legislation, it faces a collective action problem of sincere voting, and must prevent legislators from centrist districts from voting against noncentrist legislation. From 2011 through 2016, though, Republican Party leadership faced a different challenge, and leaders were pitted against the extremists in their caucus. This occurred because of a change to the legislative agenda resulting from the combination of extreme polarization and divided government introduced by the 2010 election. With no incentive to work on normal legislation, the agenda did little but avoid reversion points, like debt ceiling breaches, which the extreme elements in the caucus actually found acceptable. Speaker Boehner was forced to solve a new collective action problem, then, convincing a group of Republicans to join with Democrats on bipartisan deals to avoid these reversion points. While historically unusual, the dynamic is what would be expected from the unified model.