It’s possible that we’ll not in fact find out whether inflation is a purely monetary phenomenon. For Joe Biden seems set on trying to gain inflation anyway, through simple overstimulus of the economy. He’s proposing that there be $1 trillion deficits out for the next decade. Just the thing when the economy is already growing strongly, right?
Under the plan, documents for which were obtained by the Times, the federal government would spend $6 trillion in the 2022 fiscal year, and spending would increase to $8.2 trillion by the year 2031.
That is, you know, a lot.
The plan demonstrates that Biden shows little interest in taming the deficit, which would remain above $1 trillion through the next decade, despite an expected economic recovery.
That’s really a lot a lot.
Rather than find a path to a sustainable debt, the plan would increase the country’s debt burden to 117 percent of GDP by the end of the decade,
This is after all the calculations about how much such spending will grow the economy.
Writ large, the budget proposal, which the White House is expected to formally lay out on Friday, is an unabashed call for a bigger role for government in the U.S. economy, bringing spending to a quarter of the nation’s annual output, larger than any level before the pandemic.
Well, yes. And then when you add local and state spending on top then you’re going to get to 35% of GDP, perhaps a bit more. Which is European levels – UK sorta numbers. And guess what? Even with that sort of spending they’re still not going to have universal and single payer health care, nor an all round welfare state.
What will happen though is substantial inflation. For the economy is already booming. There are already inflationary pressures. And the money supply has expanded out the wazoo. Add in substantial deficit spending and which possible cause of inflation don’t we already have?
Sadly, this isn’t in fact good news for those of us who even still understand the phrase “fiscal rectitude”. For there are so many things that might go wrong here that the blame will never be pinned upon any one of them.
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In other words the Yanks are going to get it up the rectum.
And to be precise, the debtors are going to stick it to the creditors and that will include many foreigners of course who trusted the US to make good on its debts.
Fortunately for Biden, he won't be around long enough to face the consequences of his actions.
I'd be curious to know what could happen with this kind of debt if - for example - China decided to call the US's bluff on their increasingly funny money.
Of course, the US would still have a big army to threaten them with (wasn't there a rumour that the Iraq war was provoked by Saddam Hussein wanting to sell oil in Euros?), but if there was already meyhem in the US, and the army was occupied trying to keep the peace there...
Someone trying to sell or price their oil in euros makes no damn difference to anything at all. The FX markets are the most liquid in the world. So, they want €? Go buy some.
China has nukes. North Korea has nukes too and they are enough of a porcupine that the US isn't going to attack. Right now the Chinese have called the US and have stopped adding to their US treasury holdings.
Not correct and can't be true. So long as they have a trade surplus, and they do, they have to buy bonds or assets. They are not buying enough assets because the surpluss is too large to buy so many assets so fast. They may then resell the bonds but someone is holding them. As Tim likes to say, the ballance of payments always ballances.
That's part of the problem--calling a bluff means doing what, exactly? Receiving devalued US dollars in exchange for US Treasury bonds?
Well the fact is the US is devaluing its dollar, so why should creditors stand pat. Look, if you loaned money to a deadbeat nation, I mean, sure, mistake made, but you don't throw good money after bad money. Right now the Chinese are sitting on US treasuries, they should likely consider selling them on the open market, slowly and surely and get something of value in return for them. Remember they spent their scarce time, labor and capital to produce things that Americans actually wanted to buy and in return we re-exported empty containers, dollars/treasuries (oversimplifying). Now the US is monetizing the debt. Now, for sure when they sell the treasuries they will receive dollars and they will slowly devalue further if they are simply held in that form. Trade them for something else or for other assets they want.
Right, the rub is that “something else or other assets” are probably US based, either government-issued or something like real estate.
Janet Yellen has a bond to sell you!
Can we now bury Keynes's hoax that budget deficits would be negated and the debt paid down in good times? In good times, the politicians who used Keynes as an expert simply change their tune. A pesky chest cold "changes everything."
There is something I don't understand about trade deficits
Based on the information at
https://tradingeconomics.com/cyprus
they have been running a trade deficit of 1bn Euro a quarter, and their Gross Fixed Capital Formation is about half of that. This has been the case for quite a long time so why hasn't Cyprus gone totally and utterly Annabel Chong as an entity.
I realise that the USA has GFCF way ahead by several multiples of their trade deficit but if the argument on deficits relative to GFCF holds up and so USA will be fine then the same argument should mean that countries like Cyprus should be going under. Not happened yet, so why so?