Critics have repeatedly said that this circular form of fiscal finance – in which one arm of government, the central bank, creates in principle the money needed to finance the government arm that taxes and expenditures – would be disproportionate. leading to a spiral of inflation, a spike in interest rates or a loss of confidence in the currency. It did not.
“This is a 40-year pattern,” said Stephanie Kelton, a professor of economics and public policy at Stony Brook University and a proponent of what is often called Modern Monetary Theory. That opinion implies that countries that control their own currency have much more room to run large deficits than traditionally thought. “The very premise that deficits increase interest rates is just wrong,” she said.
At the end of last year, the United States had about $ 17 trillion in debt – about 80 percent of its gross domestic product. In January, government analysts predicted that debt would approach 100 percent of GDP by 2030. But at the end of June, the debt stood at $ 20.53 trillion, or roughly 106 percent of GDP, which shrank amid widespread stay-at-home orders. (These numbers do not count trillions more than the government owes itself in bonds held by the Social Security and Medicare trust funds.)
That more than 25 percentage point strain would represent the largest annual jump in U.S. debt since Alexander Hamilton founded the nation’s credit in the 1790s, and even surpassed debt growth at the height of World War II, according to bureau data for budget of Congress.
And it’s not over yet. The treasury is expected to borrow more than $ 1 trillion more by the end of the year – and that is without counting another incentive package. Republicans in Congress have bid for a $ 1 trillion package, while Democrats have already passed their own plan with a price tag of more than $ 3 trillion.
“What’s very clear is that the U.S. economy has some room for maneuver,” said Rick Rieder, global chief investor in fixed income at BlackRock, which manages more than $ 7 trillion in management for clients, including more than $ 2 trillion in bonds . “I would argue that we still have room for another fiscal package now.”
Talks over such a package are currently being halted, with the rising levels of debt often cited by Republican lawmakers as a reason to oppose more fiscal action. But even the current situation might not have been unthinkable long ago.
