Public debt – II

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The impacts of US public debt on the world economy

Currently, the US public debt absorbs the majority of international “liquid funds”. At the end of 1997, US Treasury securities held by foreign “investors” totaled US$1,23 trillion, or nearly 36% of the stock held by the private sector (US$3,4 trillion), with the largest holders being Japan. , China, the United Kingdom and Germany (CINTRA, 2000).

According to the Securities Industry and Financial Markets Association (SIFMA), in 2010 the daily volume of US Treasury securities traded reached US$ 500 billion, with 75% of the stock of securities now held by foreign investors (US$ 3,3 trillion), China holding $1,1 trillion and Japan holding $800 billion are the largest bondholders.

According to data from The Levy Economics Institute, about 75% of international capital flows are absorbed by the US to finance deficits budget and current accounts. In 2003, US external liabilities reached US$ 4,5 trillion, with the deficit current account of $541,8 billion, about 5% of US GDP. The central banks of China and Japan have accumulated a large amount of US bonds, as part of their strategies to maintain a “strong dollar” against their respective currencies, which is interesting for their exports. This form of financing deficit US government policy had the effect of containing “inflationary tensions” and, vis-à-vis, kept US consumer credit conditions on extremely favorable terms throughout the 1990s and mid-2000s.

10-year average of Federal Public Securities Debt – USA (in % GDP)


The analysis of these interrelated processes has to consider the specific conditions of world capital accumulation, considering both the national (internal) circuits of accumulation and the various integrated circuits in the international economy. It is valid, as Marx observed for the English economy of the XNUMXth century, that monetary capitalists alone envision interest as an “autonomous” component of the general reproductive process of the economy, but it is “naturally unwise to generalize this possibility and extend it to capital. society as a whole, as some vulgar economists do”.

The integrated reproductive circuits of accumulation feed the two circuits of monetary circulation, requiring permanently new income titles inputs of surplus value, in such a way that the global economy develops distributed in several national circuits of reproduction and centers of absorption of loan capital, whose epicenter is the North American State, on the side of absorption of loan capital, and the Asian economies, especially China, on the reproductive side of surplus value.

It can be thought, in global terms, that regional or national accumulation circuits function as “isolated capitalists” that feed a certain permanent flow of loan capital, partially absorbed by a counter flow of public debt of the hegemonic nation, that is, public debt works by absorbing loan capital and making it possible to prolong the rising phases of localized accumulation cycles. However, at the limit, the continuity of integrated feeding of these circuits will lead to the crisis of overproduction of capital in global terms. Illustratively, we can conceive the economic flows between the US and China/Japan (Asian bloc) as structured by the following simplified moments:

i) The reproductive DI and DII from those countries sell to the USA, constituting the deficit commercial power. US war production requires a permanent exchange with the reproductive departments of those nations and, obviously, also internally, which leads to new exchange needs, mainly due to the overload of this non-reproductive DII (war goods and luxury goods) on the departments internal reproduction.

ii) This one deficit trade makes possible the accumulation of money capital (real surpluses) in the hands of Asian (and also partly European) money capitalists (and States).

iii) The US public debt absorbs this loan capital and feeds the international credit circuit with a growing mass of public bonds. In the short term, the circuit closes as long as the dynamics of Asian accumulation remain, however with growing international monetary instability. There is, therefore, full integration between the Asian accumulation circuits and the US public debt, but the system tends towards increasing instability as the dependence on the puncture of surplus value from a single large reproductive point (China) increases, and the capacity to fiscal balance of the central economy (USA).

Several authors have defended a specificity in relation to the US case. sui generis, that is, the possibility of an indefinite growth of that country's public debt, given that its debt is denominated in dollars, and to the extent that the FED can control the interest rate and, ultimately, print dollars, no there would be limits to your applicants deficits in current transactions. Serrano (2004), for example, states that, “contrary to other countries where the majority (if not the total) of external liabilities is denominated in other currencies, the US has the prerogative to reduce the financial service of its external debt merely through a reduction in domestic interest rates”.

Wray (2003) reasons in the same way. According to this author, the US government can sell securities to foreigners as long as “these securities are denominated in domestic fiduciary currency”. In this case, “they will not entail any 'risks' beyond those posed by internally held securities”. It seems to us that these analyzes are partially mistaken, and the following observations can be made in the light of what has been exposed so far:

i) The limit for the State's indebtedness is given, mainly, by the expansion capacity of the tax burden, which naturally depends on the internal growth of the economy as a consequence of higher accumulation rates in the internal reproductive departments of the same. It is clear that a growing financial burden on these departments, accompanied by a growing ratio of net income absorption by the public debt and its subsequent dissipation in unproductive spending, could, in a given period of time, undermine the national reproductive conditions.

ii) As capitalism is a global system whose expansion capacity is regulated by the existence of national systems that are integrated and partially dependent on each other, a restriction can be established given by the political and military power of the debtor nation in relation to external creditors . However, this political and military power will be, as in the previous aspect, undermined, as the reproductive (economic) conditions that sustain this order enter into crisis.

The overproduction of capital is the triggering aspect of capitalist crises, generating a decline in the average rate of profit and the growing need for monetary credit to face maturing debts and overdraft loans on the part of capitalists. Overproduction necessarily entails the devaluation of commodity capital and the loss of the credit money in circulation as a means of payment. Faced with maturing debts and the questioning of the validity of a portion of the credit notes, an increasing use of Central Bank reserves is required and, ultimately, greater intervention by this body.

Three aspects of public debt dynamics in times of crisis can be highlighted: i) it acts by absorbing excessive loan capital, in this specific case it has countercyclical action; ii) a possible growing need on the part of the State for resources forces an increasing supply of public securities in the primary market, which constitutes an additional factor for the demand for loan capital. In this segment of the business cycle, public debt is one more component in the pressure on interest rates; iii) concomitantly, the growing need for money capital on the part of capitalists in general leads them to sell off a growing mass of fictitious capital securities on the secondary market.

The large supply of securities, considering the primary and secondary market, produces a decline in their face price and leads mainly to a redistribution and concentration of values ​​in the hands of a segment of capitalists to the detriment of the previous segment.

In times of crisis in the money market, public securities experience a double depreciation: first, because interest rates rise and, second, because they are launched en masse on the market, to be converted into cash (central bank notes). In a moment of crisis, a critical relationship is configured between the performance of fiscal policy and that of monetary policy and, more than ever, the State has to act as a class body, converging its performance according to the interests of sectors of the bourgeoisie with greater financial power. It can be observed that, in general, in terms of financing the deficit tax, there is a clear aggravation due to the impossibility of increasing the tax burden, given the financing conditions of companies, defaults and the growing mass of protested credit titles.

On the other hand, the financial market situation puts pressure on interest rates to rise, with monetary policy acting in the open market by decompressing the money market, acquiring securities and offering central bank notes in order to reduce interest rates and alleviate the financing costs of companies. However, this is at the limit made impossible by the absence of monetary reserves that are always, or mainly, fiscal reserves. The solution is via the external market, or through the inflow of foreign loan capital, through the sale of public debt securities on the international market, increasing the external debt, but alleviating the monetary crisis in the short term, or through the inflow of money via the balance sheet. commercial.

This set of movements is quite explicit in the current European crisis, partly due to an aspect previously considered: the absence of a centralized Treasury, with the resulting powers of taxation and issuance. It is worth noting that the interests of peripheral European states are subordinated to preserving the loan capital of German and French banks. In this sense, the postponement of the default Greek, for example, is conditional on the recycling of Greek public securities that made up the portfolio of those institutions, for guaranteed securities of central states, especially Germany and France, or socialization of losses through the purchase of these same securities, with the lowest possible discount, by the Bank Central Europe.

Depending on the severity of the crisis, the supply of public securities on the secondary market adds to the supply of securities on the primary market, putting downward pressure on their prices and, parallel to their depreciation, their growing centralization in the hands of external creditors. Marx (1981b, p. 538) observes that, after the crisis, “[public] bonds returned to their previous level”, however their depreciation acted “powerfully towards centralizing financial wealth”.

Public debt absorbs borrowing capital as a functional condition of the system, reducing the largest flow (over accumulation) of capital, which avoids the decline in the short-term interest rate and the possible increase in speculation with various credit securities. The way this is done, through the issuance of short- and long-term bonds, ends up giving new flexibility to the credit system, increasing the mass of fictitious capital in the economy, which gives rise to new problems, in addition to feeding the disproportion between departments ( non-reproductive, part of the DII and reproductive, DI and part of the DII) to finance state expenditures.

These various elements dealt with on the Public Debt reinforce the point made by Professor Eleutério: “a change is necessary in the very mode of production, in the relations of production and in the metabolism of man with nature, a change that is capable of guaranteeing the survival of the humanity."

Thus, the limits of the “mixed economy” and Keynesian policies seem to have come to an end, it is now time to think about the long trajectory of the future, or repeating Rosa de Luxemburg, barbarism. Let's live to see which path humanity will take.

*Jose Raimundo Trinidad He is a professor at the Graduate Program in Economics at UFPA. Author, among other books, of Criticism of the Political Economy of the Public Debt and the Capitalist Credit System: a Marxist approach (CRV).

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MARX, K. The capital (Book III). São Paulo: Boitempo, 2017.

SERRANO, F. “Power Relations and American Macroeconomic Policy, from Bretton Woods to the Flexible Dollar Standard”. In: FIORI, J. L (org.). The American Power. Petrópolis: Editora Vozes, 2004.

TRINDADE, JRB Criticism of the Political Economy of the Public Debt and the Capitalist Credit System: a Marxist approach🇧🇷 Curitiba: CRV, 2017.

WRAY, L. Randall. Work and money today: the key to full employment and price stability. Rio de Janeiro: Counterpoint, 2003.

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