Jump to content

US will lack fiscal space to respond when next recession comes


Recommended Posts

https://www.theguardian.com/business/2018/aug/28/us-will-lack-fiscal-space-to-respond-when-next-recession-comes

 

Quote

The US Bureau of Economic Analysis estimates that GDP growth in the second quarter of 2018 reached 4.1% – the highest since the 4.9% achieved under President Barack Obama in 2014. Another year of growth will match the record 10-year expansion of the 1990s. Add to that low unemployment and things are looking good.

But this cannot continue forever. Given massive global corporate debt and a soaring US stock market – the cyclically adjusted price-to-earnings ratio is high by historical standards – one possible trigger for a downturn in the coming years is a negative shock that could send securities tumbling.

 

Quote

Whatever the immediate trigger, the consequences for the US are likely to be severe, for a simple reason: the US government continues to pursue procyclical fiscal, macroprudential, and even monetary policies. While it is hard to get countercyclical timing exactly right, that is no excuse for procyclical policy; an approach that puts the US in a weak position to manage the next inevitable shock.

During economic upswings the budget deficit usually falls, at least as a share of GDP. But with the US undertaking its most radically procyclical fiscal expansion since the late 1960s, and perhaps since the second world war, the Congressional Budget Office projects that the federal government’s fast-growing deficit will exceed $1tn (£775bn) this year.

The US deficit is being blown up on both the revenue and expenditure sides. Although a reduction in the corporate tax rate was needed, the tax bill that congressional Republicans enacted last December was nowhere near revenue-neutral, as it should have been. Like the Republican-led governments of Ronald Reagan and George W Bush, the Trump administration claims to favour small government but is actually highly profligate. As a result, when the next recession comes, the US will lack fiscal space to respond.

 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...