US Fiscal Strain Looms as Key Challenge for Newly Elected Trump

• Newly elected U.S. President Donald Trump will face fiscal challenges that could threaten the country's standing in the global debt markets, hurting investor appetite for the nation's debt securities, and pushing government borrowing costs higher.
• U.S. budget deficits and government debt levels were largely projected to surge under either candidate in the Nov. 5 election, according to several estimates, although Democrat Kamala Harris was expected to add less debt than Trump.
• The prospect of rising government debt levels as Trump's odds improved in recent weeks helped send U.S. government bond yields higher, as many believe his trade and tax policies will reignite inflation and worsen the U.S. fiscal picture. A key hurdle for the new administration will likely be the reinstatement of the federal debt ceiling on Jan. 2, which was suspended in 2023 following protracted negotiations with Congress.
• Washington regularly sets a limit on federal borrowing, which must be approved by a majority of lawmakers. Debt limit disputes in the past have pushed the country to the brink of default and dented its credit rating - a scenario that could be on the cards again in the event of a divided government.
• Barring a quick resolution, the Treasury Department will likely need to use its cash reserves and so-called extraordinary measures - or an array of accounting maneuvers - to fund the government until the so-called X date, when it will no longer be able to pay all its bills. Some analysts estimate that could be in the second half of next year.
• Even without accounting for the likely extension of all or most of the tax cuts, Trump signed into law when he was president in 2017, which expire at the end of next year, government debt held by the public could nearly double over the next decade from $26 trillion at the end of last year, according to forecasts of the nonpartisan Congressional Budget Office.

(Source: Reuters)