The secret of US growth? A public spending boom
US GDP growth data was released this week and, at first glance, it seems that the so-called “Bideneconomics” is working: there is no recession, i.e. falling GDP , despite the interest rate growth wanted by the Fed
A result of growth much higher than that achieved by European countries, with Germany in recession and France and Spain growing less than that of the USA.
How has the US succeeded in what the Europeans fail? Simple: with so much public spending.
The data is quite clear and just look at the graph below
Government spending, which had peaked in late 2020 on covid-related stimulus and then declined during 2022, then started growing again from the end of that year to return to $6.7 billion. A fiscal stimulus of almost 1 trillion dollars. Not bad….
This trend is clearly visible in the development of the US public deficit during the year: 2023 is only slightly better than 2020 and 2021, covid years
Obviously this translates above all into public debt, which in turn generates growing interest, which is also part of the deficit.
US fiscal stimulus is "stealth," it's not tied to any big programs, like CHIPS or IRA or infrastructure spending. This deficit boom is tied to FEMA's disaster relief programs and a series of ancillary laws it didn't think could lead to these deficit levels.
The beauty is that the effects of the partial cancellation of student debt with which the 2023 deficit risks reaching 7.0% of US GDP have not yet been accounted for.
The fact that the deficit, as we noted above, is also linked to an explosion in interest rates means that a part of this "Stimulus" takes and goes abroad.
So Biden likes to win easy and keeps GDP growth high, even in the face of monetary tightening, with nice spending growth. Now let's go explain it to the Germans and see what they tell us.
Thanks to our Telegram channel you can stay updated on the publication of new articles from Economic Scenarios.
The article The secret of US growth? A public spending boom comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-segreto-della-crescita-usa-un-boom-di-spesa-pubblica/ on Sat, 29 Jul 2023 08:00:29 +0000.