South Africa and the world have to brace itself for a devaluation of the United States (US) dollar. America’s gross national debt has come to surpass its $ 38 trillion limit for the first time, US Treasury Department data shows. The mounting American debt has increased beyond the apex as the government remains closed. This has led to a significant disruption of the economy as hundreds of thousands of federal employees go unpaid.
In Washington DC, shutdowns by the federal government can boost the national debt because they delay economic activity and postpone fiscal decisions, while pausing federal programs and starting up again can also increase costs. In 2013 a US government shutdown cost $2 billion in lost worker productivity. This was estimated by the Office of Management and Budget.
The federal deficit is the gap between what the federal government spends each year and what it collects in revenue, while the debt is the total amount it owes over time. The U.S. debt reached $34 trillion in January 2024, $35 trillion in July 2024 and $36 trillion in November 2024. The longest shutdown in U.S. history, the 35-day stalemate in 2018, cost the economy $11 billion, largely to a reduction in spending by federal workers, according to the Congressional Budget Office. In September, 81% of voters surveyed by the Peterson Foundation highlighted the national debt an issue of concern. According to economists, the growing mountain of debt leads to higher interest costs for the U.S. government.
Interest payments on the nation’s debt are forecast to rise from $4 trillion over the past decade to $14 trillion over the next 10 years, curtailing public and private spending in key economic sectors, the Peterson Foundation said.
If Federal employees from judges, police, law enforcement agencies, the fire department, doctors, teachers, the medical research sector, government public employees in Washington and soldiers don’t get paid the US will enter a state of paralysis. This paralysis could turn from chaos to pandemonium. Even Prison staff will be affected by the prospect of no pay. If Washington, that is the White House (executive branch), Congress and the US Supreme Court do not pay their workers there could be a risk of collapse of the American federal state as a political entity. The possibility of strikes by the public sector in terms of teachers and civil servants is very real. The allocation of funds by the federal department of the treasury across other US federal government departments and all fifty states needs to take place along ethical reasoning.
South Africa, that is Pretoria and the business class needs to play their cards right when it comes to having trade with the US. The impact of 14 trillion-dollar debt on the US dollar could result in an unstable Dollar that could see South Africa being paid less for any exports.
The South African rand was flat in early trade on Wednesday, mirroring most emerging market currencies, as investor concerns over a prolonged U.S. government shutdown drove demand for safe-haven assets. At 0648 GMT the rand traded at 17.25 against the dollar, little changed from Tuesday’s close. The dollar index, which measures the greenback’s strength against a basket of currencies, traded 0.3% firmer, while gold pushed through $4,000 an ounce to hit a record level on Wednesday. shutdown entered its seventh day on Tuesday and has postponed the release of key economic indicators from the world’s biggest economy, forcing investors to rely on secondary, non-government data to gauge the timing and extent of Fed rate cuts.
“Despite expectations of a Federal Reserve rate cut, the USD remains robust, supported by the U.S’ political and economic uncertainties,” said ETM Analytics in a research note, adding that this has translated into the rand losing some ground.
The decline in value for the dollar due to the government shut down occurred due to a lack of payments for basic services in the US. This means federal workers who make up a quarter of the population will not be able to satisfy basic needs let alone buy any type of product. A significant portion of revenue is not being sent back into the system through circulation. The dollar then takes a blow and is worth a lot less. South Africa will receive a lot less too depending on how much US spends on South African products in general. Washington relies heavily on its gold reserves to bolster the Dollar. Economic wise the gold is no longer in vast quantities.
It may be time for international bodies such as the European Union (EU), Association of South east Asian Nations (ASEAN) and African Union (AU) to strengthen trade ties with each other. Washington may take its time with the Shut down or it may be over soon. However American influence may be on the decline.
Article written by:
Yacoob Cassim
Journalist at Radio Al Ansaar
