Opinion | US must ground its economic policy in reality, sooner rather than later

Where did all this growth come from? Was it simply that the world’s largest economy is better managed than those elsewhere? The Biden administration, which has presided over this extended growth period, would certainly like us to believe so.

The truth is different and it is beginning to become clear now. It turns out that recent US growth has in large part been bought by the federal government financing of both personal consumption and public sector job creation. This has added to ballooning and increasingly risky US fiscal deficits.

This is not a narrative that the Biden administration will be anxious to have broadcast in the run-up to the presidential election in November. Neither will complacent financial markets – glutted as they are with liquidity – be happy to see the myth of a resilient US economy explode.

As that myth progressively unravels in the weeks and months ahead, the implications for the rest of the world will become increasingly and uncomfortably obvious. Swings in interest rates and currency values as well as capital flows and trade will particularly impact the open economies of Asia.

The International Monetary Fund’s (IMF) latest World Economic Outlook offers a taste of what is to come. Especially worrying is its observation that in the first quarter of this year in the US “after a sustained period of strong outperformance, a sharper-than-expected slowdown in growth reflected moderating consumption and a negative contribution from net trade”.