How to interpret America’s experiment with huge budget deficits

“DEFICITS don’t matter,” said Dick Cheney, then the vice-president, in 2004. He may have meant what he said, yet the administration he belonged to showed a decided lack of conviction when it came to borrowing, with the federal deficit never rising above 3.4% of GDP. Not so the current Republican government. In 2019 and 2020 the deficit is likely to rise to nearly 6% of GDP, the largest, outside of times of economic crisis, since the second world war. In his first term, Donald Trump’s deficits will be nearly as large, on average, as those run by Barack Obama during his presidency, according to analysis by JPMorgan. That is impressive given that Mr Obama faced the worst economic downturn since the Depression. In budgeting, as in so many areas, America is wandering into uncharted territory. What might it find there?

Orthodox economics suggests two ways in which things could go wrong. When an economy is running at close to full tilt, so that firms are borrowing and investing as much as banks are...



via The Economist: Finance and economics Business Feeds

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