2019-01-23 11:32:00 Wed ET
treasury deficit debt employment inflation interest rate macrofinance fiscal stimulus economic growth fiscal budget public finance treasury bond treasury yield sovereign debt sovereign wealth fund tax cuts government expenditures
Higher public debt levels, global interest rate hikes, and subpar Chinese economic growth rates are the major risks to the world economy from 2019 to 2020. American public debt now hovers around $15 trillion with another $6 trillion intragovernmental debt positions. This debt dilemma poses a core conceptual challenge to the Trump administration that may need to carry out counter-cyclical fiscal policies to contain the next economic recession. With $1.5 trillion infrastructure expenditures and $1 trillion tax cuts, the Trump administration faces a hefty $800 billion fiscal deficit. As the Treasury funds the fiscal deficit with incessant government bond issuance, the Federal Reserve has to raise seigniorage taxes in the form of higher money supply growth. In turn, this money supply growth causes higher prices as inflation surges beyond the 2%-2.5% target threshold. The current U.S. Phillips curve remains flat and thus reflects low inflation and low unemployment. In accordance with the dual mandate of price stability and maximum employment, the Federal Reserve should continue the gradual interest rate hike at a slower pace. The U.S. financial history suggests that unforeseen asset market surprises can cause key capital investment retrenchment as the government fails to implement counter-cyclical fiscal policies in time.
Moreover, Chinese real GDP economic growth can decline from 6.5%-7% to 5.5%-6%. As the Chinese Xi administration continues to decentralize the consumer-led economy, this transition translates into lower demand for international goods and services. With the primary focus on exports and real estate investments, China may cause inadvertent contractionary spillovers into several East Asian countries and some western open economies. U.S. households and firms may face higher costs of tradable goods and services as the Chinese economy experiences subpar economic growth. However, the latter may be a minor concern in light of the likely Sino-U.S. trade war resolution.
On balance, the U.S. Federal Reserve needs to better align medium-term interest rate adjustments with fiscal expectations between the White House and Treasury. Optimal interest rate decisions may need to react to productivity surprises, inflation expectations, economic output gaps, and asset price gyrations. To the extent that macroeconomic fluctuations manifest in credit conditions and corporate profits, the central bank has to consider conservative interest rate increases. From Australia, Britain, and Canada to Germany and Japan, international monetary policies may start to follow the current U.S. interest rate hike. The new global interest rate cycle can be especially pertinent for European and East Asian small open economies.
If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.
2018-09-25 10:35:00 Tuesday ET
Sirius XM pays $3.5 billion shares to acquire the music app company Pandora. This acquisition would form the largest audio entertainment company worldwide.
2018-09-07 07:33:00 Friday ET
The Economist re-evaluates the realistic scenario that the world has learned few lessons of the global financial crisis from 2008 to 2009 over the past deca
2018-07-21 13:35:00 Saturday ET
President Trump supports a bipartisan bill or the Foreign Investment Risk Review Modernization Act (FIRRMA), which effectively broadens the jurisdiction of
2017-04-25 06:35:00 Tuesday ET
This nice and clear infographic visualization helps us better decipher the main memes and themes of President Donald Trump's first 100 days in office.
2017-05-19 09:39:00 Friday ET
FAMGA stands for Facebook, Apple, Microsoft, Google, and Amazon. These tech giants account for more than 15% of market capitalization of the American stock
2018-07-17 08:35:00 Tuesday ET
Henry Paulson and Timothy Geithner (former Treasury heads) and Ben Bernanke (former Fed chairman) warn that people seem to have forgotten the lessons of the