The USA and national debt: victory in battle, but not in war


US DebtAs a result of increase in the United States national debt, S&P agency deprived the U.S. of its high credit rating. Even in  the first period of Barack Obama’s presidency, his administration has to implement some measures in order to decrease debt burden. Democrats and Republicants has been discussing this issue two years. But compromise agreement has not been made. As a result from the 1st of March so called sequestration come into power, that is automatic reduction in government spending by 85 milliard dollars. What is more, from 1 January 2013 tax privileges, which had been valid from the times of presidency of Jorge Bush, were abolished.

We are going to know what will be the balance of national budget after sequestration comes into force. But effect from increase in taxes is already noticeable. In February budget deficit was 203.5 milliard dollars in comparison with 231.7 milliards a year earlier. And in January the result was even better: the US budget surplus was observed (2.9 milliard dollars in comparison with 27.4 milliards deficit in January 2012).

Such positive dynamics influences general indicators of financial year 2012/2013, starting from the 1st of October. During five months budget deficit reduced from 580.8 milliard dollars in financial year 2011/2012 to 494.0 milliard dollars in financial year 2012/2013.

Of course, it was achieved because of revenue, which has already reached a trillion dollars in the current fiscal year exceeded last year level by 13%. Federal spending during the same period – from October to February –  1.5 trillion dollars (+2% to the last year level).

United States government budget

According to the estimate, such policy may help the USA to reduce annual budget deficit under the point of 1 trillion dollars for the first time for five years. According to the forecast of Office of Management and Budget, annual deficit will be 845 milliards dollars. But, economists notified that in the long-term perspective it will not solve the problem of national debt. According to the estimate, after a few years of deficit reduction, the budget will start increasing under the pressure of increased social spendings. So, the US debt burden will be increasing if more radical measures are not implemented.

In order to stop the rise of debt, spending must coincide with revenue. In order to make the debt decreasing, revenue must exceed spending. The there will be opportunity to finance all spending and pay all old debts, not getting into new ones. Democrats’ and Republicants’ points of view on the resolution of this problems are quite different. Republicants count that the main point in the fight for budget without a deficit must be not tax rise, but radical reduction of government spending. According to the Democrats’ scenario tax rise and spending reduction must be implemented in equal volumes. Both plans will not realize…

Victory in battle does not mean victory in war. Small achievements of the USA in fight against national debt do not instill confidence in its final victory in was against reduction of national debt.

Thumbnail image author Phil Dokas at


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I have been friend with currency market since 2006. I hope that this friendship is not only useful to me, because over the years I have repeatedly provided analytical services to various companies and media outlets. I love fundamental analysis. Every day, I am convinced that the statistics is not boring numbers but fascinating reading, which, moreover, can predict the future. Technical analysis is also not neglected, especially as my hobby - finding effective algorithms for automated trading systems.