Economists are divided about when the next U.S. recession will arrive, but they ...
DENVER - Economists are divided about when the next U.S. recession will arrive, but they largely agree on this: the country will need to fight it with a massive fiscal program, and be ready to swallow deficits that may eclipse the trillion-dollar shortfall run by the Trump administration this year.
In the next recession, the United States should contemplate “a pretty generous package,” of perhaps as much as $1.7 trillion, double the amount approved for recession fighting in early 2009 during a steep downturn, Karen Dynan, a former Fed and Treasury official now at the Peterson Institute for International Economics, said in a recent discussion of the world economic outlook.
The consensus that major world governments can borrow more is driven by a simple fact: over a period of time when the United States was running up a trillion dollar deficit, the Fed was tightening policy and the U.S. economy was growing faster than expected, interest rates on U.S. Treasury bonds remained low - and even notched some new records.
“This is the demographic point. We are going to be close to the zero lower bound forever,” a fact which gives central banks less room to boost the economy through traditional rate cuts, but also gives more room for government to borrow, said Julia Coronado, a former Fed staffer and founder of Macropolicy Perspectives consultants.
MMT has figured into plans developed by some Democratic presidential candidates for guaranteed employment programs, as well as massive proposed expenditures to combat climate change.But even among mainstream economists, rising debt - at least for nations with strong currencies and institutions - is no longer a dirty word.
Over the past year in particular the benchmarks once seen as near inviolable have been considered less and less binding, particularly for the United States. The country’s role as issuer of the world’s reserve currency, and image as a safe and stable place to do business, keeps demand for U.S. debt high and its interest rates low in a world hungry for a “risk-free” way to invest.
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