Released today, at International economic forum:
“At some point, federal stimulus checks will cease. Consumer sentiment may continue to be affected by fear of Covid-related complications. The world economy seems difficult to go smoothly. Is it possible that US policymakers have launched all fiscal stimulus prematurely Cannon? If the economic performance in 2022 is significantly poor, will they lack ammunition? Some economists use different metaphors to describe this danger as “hit the fiscal cliff head-on.” To what extent should American policymakers be concerned? The economy is already rebounding. Should policymakers postpone the issuance of checks until 2022?
Joe Gagnon (PIIE), John Taylor (Stanford), Mohamed el-Erian (Allianz), Steve Kamin (AEI) and Bill Dickens (Northeastern) and my own comments. This is my comment:
First, although the federal debt held by the public is increasing rapidly, and the Congressional Budget Office expects to further increase from 100% in 2020 to 106% of GDP by 2031, the largest debt-to-GDP ratio that can be maintained (hence, between the two The gap (sometimes regarded as a measure of “fiscal space”) is unknown, especially for countries that issue debt in global reserve currencies. In addition, the real
The interest rate we pay for this debt may be lower than the GDP growth rate for a period of time-the actual 10-year interest rate has stayed at about minus 1% for a year, and is close to 0. On the eve of the pandemic, we have more There is room for running the basic deficit (and stabilizing the debt-to-GDP ratio), rather than a situation where people think that real interest rates will rise to 1.5%.Second, if the observed tax revenue is used as a measure, another indicator of the size of fiscal space—debt tax base—seems to be very low. However, if taxes can be raised so that we can collect the same income-to-GDP ratio as in 1979, then the deterioration of fiscal space will not be so worrying; by then, the debt-to-tax revenue will only be greater than at the end of the Great Recession Slightly higher.Of course it’s a tax increase
It is difficult to increase tax revenue. In other words, fiscal space depends to a certain extent on political will.Third, what do we spend fiscal ammunition on? Compared with other types of expenditures, infrastructure expenditures have a greater multiplier effect in the short-term and especially in the long-term. In view of the current government’s actual financing cost allocation, it is not clear whether increasing infrastructure investment spending will really reduce fiscal space.
Finally, back to the first point, the federal government’s funding is the U.S. dollar, which is the global currency. It can be expected that most of the debt will be easily purchased by foreigners, including central banks and private entities. Although the federal debt continues to increase, this may be true because governments around the world have also issued more debts after the Covid crisis.
The real danger is that we will shrink too quickly to deal with perceived but illusory constraints, derailing growth. We have been there before and we should not repeat that experience. At present, the United States has sufficient ammunition reserves, and we should be ready to use it.
(Written at the end of August).
