BEIJING, June 8 (Xinhua) -- Despite U.S. President Joe Biden touting the bipartisan agreement on the debt ceiling as "a big win" for the country, global concerns about the risks of America"s economy have only intensified.

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The risks of the U.S. economy have not only failed to dissipate but have even increased in some areas.

MARKET LIQUIDITY SQUEEZE

Market analysts anticipate that the cash-strapped U.S. Treasury Department may start massive borrowing, unleashing a "tsunami" of new bonds, which could lead to a drain in market liquidity.

Data from the U.S. Treasury Department showed that as of June 1, the Treasury"s cash balance has fallen below 23 billion U.S. dollars. After the debt-cap resolution, the Treasury Department is expected to replenish its cash balance to 550 billion dollars by the end of this month. Market participants anticipate the Treasury"s debt issuance in the coming months could exceed 1 trillion dollars.

"This is a very big liquidity drain. We have rarely seen something like that. It"s only in severe crashes like the Lehman crisis where you see something like that contraction," JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou was quoted by Bloomberg as saying. Bank of America Corp. analysts have estimated that a quarter-point interest rate hike would have the same economic impact.

A deluge is likely to suck a significant amount of liquidity out of financial markets, Bloomberg reported, adding that it could add pressure to a financial system still showing signs of strain after several banks collapsed with the Federal Reserve raising interest rates and shrinking its balance sheet.

The good news of a tentative deal for the U.S. debt ceiling impasse may quickly turn out to be bad news for financial markets, Reuters has reported, explaining that once a deal is reached, the U.S. Treasury is expected to quickly refill its empty coffers with bond issuance, sucking hundreds of billions of dollars of cash from the market.

"Our concern is that if liquidity starts leaving the system, for whatever reason, this creates an environment where markets are crash prone," Alex Lennard, investment director at global asset manager Ruffer, was quoted as saying by Reuters. "That"s where the debt ceiling matters."

LIMITED FEDERAL SPENDING

The debt ceiling bill restricts federal spending for the fiscal years 2024 and 2025. Market participants believe that the U.S. economy has been weighed down by various unfavorable factors in recent quarters, with growth barely sustained by federal expenditures, so the bill"s restrictions on spending may dampen this supportive factor.

"Fiscal multipliers tend to be higher in a recession, so if we were to enter a downturn, then the reduced fiscal spending could have a larger impact on GDP and employment," Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., was quoted by Bloomberg as saying.

In addition to increasing financial risks and weakening growth momentum in the short term, the debt ceiling bill, in the long run, fails to substantively address the long-standing institutional flaws in the U.S. economy regarding debt issues.

The two parties agreed to restrict spending for the fiscal years 2024 and 2025 in exchange for suspending the debt ceiling until January 2025, which coincides with the assumption of office by the next president and the induction of some members of Congress, effectively passing the "old account" to "new officials."

Furthermore, two key fiscal issues related to the U.S. debt, welfare spending and tax revenue, were not significantly addressed in the bill. Democrats are concerned that pushing for tax increases will hurt their election prospects, while Republicans fear forcing Democrats to cut welfare spending will result in an angry backlash.

Republican leaders have called the deal, known as the Fiscal Responsibility Act, a historic victory for budgetary prudence. In reality, it does nothing to tackle the primary sources of America"s fiscal irresponsibility, The Economist said.

The United States isn"t the only advanced country whose politics have become polarized. Still, according to The Wall Street Journal, it is the only one where the division of budgetary authority between the executive and legislative branches, an annual budget cycle and a debt ceiling offer so many opportunities for polarized politics to jeopardize what should be the routine matter of funding the government.■

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