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Opinion | US must ground its economic policy in reality, sooner rather than later
- Government spending has played a big role in boosting the US’ consumption and jobs figures, but how long can this last?
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For some two and a half years now the rest of the world has watched with a mixture of wonderment and envy as the US economy has gone on churning out more jobs, higher consumer spending and relatively strong growth, so much so that inflation became a problem.
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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.
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