Fed Chair on stimulus: There's little risk of overdoing it

The amount of money that the United States owes investors has hit record levels in more than a few ways, based on new numbers reported Friday by the US Treasury.

Both the annual deficit and total debt accumulated over the years has topped levels not seen since World War II.
On Friday, the US Treasury reported that for fiscal year 2020, which ended September 30, the US deficit hit $3.13 trillion (which is an estimated 15.2% of GDP) thanks to the chasm between what the country spent ($6.55 trillion) and what it took in ($3.42 trillion) for the year.

    As a share of the economy, the 2020 deficit is more than triple what the annual deficit was in 2019.
    The reason for the huge year-over-year jump is simple: Starting this spring, the federal government spent more than $4 trillion to help stem the economic pain to workers and businesses caused by sudden and widespread shutdowns. And most people agree more money will need to be spent until the Covid-19 crisis is under control.

    Having topped $21 trillion, the country’s total debt owed to investors — which essentially is the sum of annual deficits that have accrued over the years — is now estimated to have outpaced the size of the economy, coming in at nearly 102% of GDP, according to calculations from the Committee for a Responsible Federal Budget. Those calculations are based on GDP projections for 2020 from the Congressional Budget Office.
    Debt hasn’t been that high since 1946 when it hit 106% of GDP.
    “The only other time debt has exceeded the size of the economy was at the end of World War II — and we ran years of mostly balanced budgets afterward to bring it back down,” CRFB president Maya MacGuineas said. “We should be borrowing now, but once the economy recovers, our debt cannot continue to grow faster than the economy forever.”

    Concerns that will have to be put off

    With millions of Americans still out of work and struggling to get by as a result, the country’s burgeoning debt is understandably no one’s top concern at the moment.
    Even deficit hawks are urging a dysfunctional Washington and a chaotic White House to approve another round of badly needed stimulus to the tune of trillions of dollars.
    “The US federal budget is on an unsustainable path, has been for some time,” Federal Reserve Chairman Jerome Powell said last week. But, Powell added, “This is not the time to give priority to those concerns.”
    However, when the country eventually pulls out of its current health and economic crises, Americans will be left with quite a debt hangover.
    The problem with such high debt levels going forward is that they will increasingly constrain what the government can do to meet the country’s needs.
    Spending is projected to continue rising and is far outpacing revenue. And interest payments alone on the debt — even if rates remain low — will consume an ever-growing share of tax dollars.

      Given the risks of future disruptions to the economy, a debt load that already is outpacing economic growth puts the country at greater risk of a fiscal crisis, which in turn would require sharp cuts to the services and benefits on which Americans rely.
      “There is no set tipping point at which a fiscal crisis becomes likely or imminent, nor is there an identifiable point at which interest costs as a percentage of GDP become unsustainable,” Congressional Budget Office director Phillip Swagel said last month. “But as the debt grows, the risks become greater.”
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      Fed Chair on stimulus: There's little risk of overdoing it

      London (CNN Business)A strong comeback in 2021 is needed to help the global economy heal from the coronavirus pandemic. But the International Monetary Fund is downgrading its forecasts for next year, and warning of a long, slow recovery that will stoke poverty and damage growth.

      The IMF predicted on Tuesday that the world economy will shrink by 4.4% in 2020, a less severe contraction than it forecast in June. The improvement is driven by a stronger than expected bounce in the United States and Europe after lockdowns lifted, as well as China’s return to growth.
      However, the organization downgraded its outlook for 2021. The IMF now sees a 5.2% increase in global output next year, down from 5.4% in its previous report. Last month, the Organization for Economic Cooperation and Development also lowered its forecast for 2021.

        “The ascent out of this calamity is likely to be long, uneven, and highly uncertain,” IMF chief economist Gita Gopinath said in a blog post.
        Covid-19 has scarred the global economy, but it's not too late to change course
        Output in advanced economies, as well as emerging markets — with the exception of China — is projected to remain below 2019 levels next year, she said.

        Looking ahead, the IMF offered a bleak look at how the global economy might perform over the medium term, its first such forecast since the outbreak began.
        Global growth is expected to slow to roughly 3.5% between 2022 and 2025, leaving the output of most economies below levels that were predicted before the pandemic.

        Big consequences

        Slow growth over such an extended period will have large aftershocks, the IMF cautioned.
        One consequence will be worsening inequality and a “severe setback” for improvements to living standards, both in developed economies like the United States and emerging markets like Mexico and Argentina.
        Extreme global poverty is also expected to rise for the first time in more than two decades.
        The IMF’s predictions assume that social distancing will continue into next year before fading over time as people get vaccines and Covid-19 treatments improve.
        The US economy is expected to shrink by 4.3% in 2020 before expanding by 3.1% in 2021. The IMF thinks the 19 countries that use the euro will experience a harsher contraction but a sharper recovery, with output falling by 8.3% this year before jumping 5.2% next year.
        Working mothers are quitting to take care of their kids, and the US job market may never be the same
        Spain, which has been hard-hit by the virus and relies on service industries like tourism, is due to fare the worst among advanced economies, with output declining by 12.8% in 2020. Among emerging market economies, India — a key engine of global growth before the pandemic — will be especially damaged. The IMF thinks its economy will shrink 10.3% this year.
        Britain, which has the added challenge of Brexit to cope with, will see its economy shrink by 9.8% this year.
        Among major economies, only China is expected to expand in 2020. The IMF believes the country, which battled Covid-19 earlier than the rest of the world and was quickly able to move out of lockdown due to strict containment measures, will grow by 1.9%.

          The IMF emphasized that uncertainty surrounding its projections is “unusually large” given the lack of clarity on the health crisis and the economic response, especially as global debt levels increase.
          If new government spending is announced, the outlook could improve, the IMF said. It’s only factored in existing legislation and announcements. On the other hand, a stronger resurgence of the virus or slower-than-expected progress on vaccines could lead to a weaker economy.
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