U.S. President Biden signed the US$1.9 trillion new crown rescue and rescue bill-the “American Rescue Plan” (American Rescue Plan), marking the official entry into force of the bill. The bill is the first major legislative project in the Biden administration, and it also marks the completion of Biden’s previous commitment to voters-to issue a $1,400 check directly to eligible Americans within 100 days of taking office, and it also includes the extension of unemployment. Insurance, funding to state and local governments, and improving vaccination and testing capabilities.
The rounds of fiscal aid expenditures have caused the US government debt to explode. The U.S. federal fiscal deficit has risen from 585 billion U.S. dollars in 2016 to 984 billion U.S. dollars in 2019. In 2020, with hundreds of millions of dollars in financial aid expenditures, the U.S. federal debt hit a record high. According to data from the U.S. Department of the Treasury, federal government expenditures in fiscal year 2020 increased by 47.3% to US$6.55 trillion. The fiscal deficit has more than tripled to more than US$3.1 trillion. The deficit as a percentage of GDP has jumped to 15.2%, which is the first consecutive year. The increase in five years is the highest level since 1945. By the end of November 2020, the total federal debt of the United States has reached 27.4 trillion US dollars, accounting for 134% of GDP.
And the current rise in US federal debt is far from end.
Under the raging epidemic, tens of millions of Americans are facing a food crisis and unable to pay their rents and become homeless. Since June 2020, about 8 million Americans have fallen below the poverty line. According to data from the US Department of Labor, there are still more than 10 million unemployed people in the United States.
Is 1.9 trillion dollars too much?
Former U.S. Treasury Secretary Summers published in the “Washington Post” on February 5 this year, “Biden’s stimulus plan is courageous, but also risky”, which triggered a lot of controversy within the Democratic Party. Summers served as Secretary of the Treasury of the Bill Clinton Administration and Senior Economic Advisor to Obama.
Summers said: “I also agree that in terms of fiscal stimulus, doing too little is riskier than doing too much.” At the same time, he also pointed to the serious problems that the 1.9 trillion stimulus plan may cause: First, It’s inflation. Although there is a lot of uncertainty, the scale of the stimulus package is so large that it is close to the size of the Second World War. It is likely to trigger inflationary pressures that this generation has never seen before, and have certain consequences for the value of the dollar and financial stability. Second, how to ensure that stimulus policies will not squeeze critical public investment space in the future. Long before the epidemic, the US economy faced many fundamental problems, including economic inequality, slow growth, and insufficient investment in all public sectors such as infrastructure, preschool education, and new energy.
In short, Summers emphasized the potential cost of “doing more”: economically, there is a risk of a sharp increase in inflation and a stock market bubble; politically, this may reduce Congress’s future fiscal actions to deal with infrastructure such as infrastructure Interest in long-term priorities such as expenditure and climate change.
In this regard, US Treasury Secretary Yellen admitted in an interview with CNN’s “State of the Union” TV program that too fast inflation is a risk that needs to be considered. But decision makers should have the tools to deal with this danger.
“As the Minister of Finance, I must worry about all the risks facing the economy,” Yellen said. “The most important risk is that we make workers and communities fear the pandemic and the resulting economic losses. We have not taken enough Measures to solve the pandemic and public health issues, we did not let our children go back to school.”
Martin Wolf, chief economic commentator of the British “Financial Times”, said in an interview with The Paper that although the official did not recognize it, when we discovered that the government has no upper limit on the deficit, it is in fact in the modern monetary theory (MMT). world. And it is difficult for us to confirm this in advance, because people’s behavior can be changed. But at least for the time being, central banks have not yet acknowledged it.
Many experts in the global financial and economic circles have confirmed to The Paper the inflation risk caused by an uncapped deficit. Wolff also pointed out that this would put the reliability of Western currencies, including the US dollar, at risk.
In Wolfe’s eyes, Modern Monetary Theory (MMT) is a relatively extreme version of Keynesianism-the prescription is to continue to expand the fiscal deficit, keep interest rates at a low level, and monetize debt by issuing as much currency as possible To ensure that the government obtains financing. Before the economic dilemma caused by the epidemic, MMT was on the verge of macroeconomics for a long time.
The current U.S. Treasury Secretary Yellen is the “successor” of Keynesianism. Yellen’s doctoral dissertation tutor James Tobin is a leading figure in the Keynesian school, and her own academic research is obviously biased towards the Keynesian school, focusing on unemployment and salary issues.
Barry Eichengreen, a professor of political economy at the University of California, Berkeley, is one of the most influential economists in the international financial and monetary system and financial crisis theory. He said in a written interview with The Paper, There is undoubtedly the “blood” of Keynesianism flowing in Yellen’s education. But he denied the claim that Modern Monetary Theory (MMT) has dominated the developed countries. He believes that a more accurate statement should be that many mature market governments have taken unprecedented relief and stimulus measures in response to the new crown epidemic. And they are also aware that these measures have limits, and they cannot last forever like this. The discussion about where this boundary is and how long these measures should last is very valuable.
Eichengreen further emphasized that the monetary policy of developed countries has reached the limit-not only interest rates are close to or below zero, but the balance sheet of the central bank has also continued to grow-all of which mean that the current overcapacity and unemployment problems must pass fiscal Policy to resolve. However, this is just the current situation and does not mean that it will be the same in the future. At some point in the future, the budget deficit must be reduced again, and monetary policy will come into play again.
Will “Biden Economics” bring growth?
Before he took office, Biden proposed that in addition to a stimulus plan totaling US$1.9 trillion, a follow-up plan for infrastructure construction of more than US$3 trillion will be launched. It can be seen that the huge deficit and high debt of the US government are still on the way.
At a meeting on infrastructure investment in March, Biden also tried to use China’s great achievements in the field of infrastructure construction to emphasize the urgency of the United States to advance a package of infrastructure investment plans.
According to the “Wall Street Journal” report on March 11, Biden and US Vice President Harris met with four senators (bipartisan) in the Oval Office of the White House on the same day, and actively “selled” their investment plans for infrastructure construction. . Biden said that the two parties did not have enough communication on infrastructure issues in the past, and he hopes to reach “some consensus” with Congress on this now. Biden specifically mentioned China to prove the urgency of the United States to strengthen its infrastructure. Biden said that China has made rapid progress in railway and electric vehicle technology.
In the political platforms of Biden and Vice President Harris, it is clearly stated that investments in modern and sustainable infrastructure and sustainable growth engines are required, including road and bridge construction, construction of energy networks and schools, general broadband and so on. Biden also plans to face the climate crisis and build a clean energy economy.
Due to similar difficulties and political ambitions, some commentators compared “Biden’s Economics” with “Roosevelt’s New Deal.” The difference between the two is that the scale of the deficit during the Roosevelt era is not the same as it is today.
In Eichengreen’s view, the comparison between the two is that they both have the ambition to spend on some innovative projects. For example, it is proposed in the Biden government’s plan to provide children with education subsidies and provide vocational training for workers.
Wolfe also acknowledged that Roosevelt was still trying to maintain financial balance. However, what is certain is that before the same huge crisis, the Biden administration hopes to be as radical as Roosevelt (left) and can bring changes to the United States.
“For Biden and his team, Roosevelt is their hero. Biden clearly regarded Roosevelt as a role model.” Wolff said.
Under the epidemic, the new economy has also made considerable progress.
In an interview with The Paper, Chen Zhiwu, Chair Professor of the Fung Foundation of the University of Hong Kong and Director of the Asia Global Institute, and former tenured professor of finance at Yale University, said in an interview with The Paper that everyone has to be locked up at home because of the new crown epidemic. Many people who are unwilling to try new technologies have no choice but to bite the bullet to learn, understand and adapt to these new technologies. In this sense, especially for the American society, the adoption and acceptance of new technologies and big data by the whole society has indeed been unexpectedly improved, thus providing greater opportunities for many high-tech industries and enterprises. Development momentum. Promote further sublimation innovation based on this mass base, all of which will play a role in boosting productivity in the next 10 years.
Is the “Biden Economics” of debt inflation sustainable?
Can the United States, with its huge debts, bear the financial burden of “Biden Economics”?
Yellen emphasized that “in a historically low interest rate environment, the United States still has fiscal surplus.”
In 2020, the interest payment burden on U.S. Treasury bonds is 338 billion U.S. dollars, but the long-term interest rate once dropped to 0.5%. The U.S. Congressional Budget Office (CBO) estimates that government interest expenditures from 2021 to 2025 will be controlled at US$270 billion to US$290 billion per year.
As the foreign exchange reserves of emerging market countries and the safe assets of financial institutions, U.S. debt has long-term and stable demand, resulting in long-term interest rates at a relatively low level. According to the forecast of the international rating agency Moody’s, driven by “Biden Economics”, long-term interest rates will rise to 2.1% by 2022 and 4.1% in 2025. The new crown epidemic crisis and “Biden economics” will break this delicate market balance, or may subvert the low interest rate environment in which huge debts can be sustained. Chen Zhiwu looked at the entire US power operation model, ideology, and the existing world monetary system. He believed that the US’s high debt and high deficit are still sustainable.
Chen Zhiwu pointed out that historically, the fiscal surplus of the US government is only an example, and the fiscal deficit is the norm. And fundamentally, the US government has some fiscal deficits and debts in a healthy state, and it is difficult to change the US development model that relies on deficits and national debt. In countries without debts and fiscal deficits, their governments are often prone to lose control of their power. For a society like the United States, there are fiscal deficits and national debts, which can in turn impose some constraints on the continuous expansion of government power under normal circumstances. The U.S. government runs a fiscal deficit every year, and the president cannot use government money to buy and please supporters. It is predicted that neither the US government’s fiscal deficit nor its proactive fiscal policy will substantially converge in the next four years.
But he also inferred from this that this may create a situation in the future—a few years later, American society’s thoughts will turn around—when the Biden administration pushes the US fiscal deficit and national debt to a new high, it may turn to the United States instead. A few years later, anti-national debt and anti-deficit thoughts will appear in society to create an environment.