RUNNING $1T DEFICITS DURING LATE CYCLE EXPANSION CRIPPLES TOOL TO FIGHT RECESSION



A PUBLIC SOURCED ARTICLE FOR MATASII (SUBSCRIBERS-RESEARCH & PUBLIC ACCESS ) READERS  REFERENCE

MACRO: US  - FISCAL POLICY

EXTRACTED FROM: 11-08-18 - RealInvestmentAdvice.com - "The Tailwinds To The Bull Market Have Shifted"



MATASII TAKEAWAYS:

  • The “sugar-high” was created by 3-massive Hurricanes in 2017 which has required billions in monetary stimulus which created jobs in manufacturing and construction and led to a temporary economic lift,
  • The massive surge in unbridled deficit spending only provides a temporary illusion of economic growth,
  • The deficit is rapidly approaching $1 Trillion, and will exceed that level in 2019, which will require further increases in the national debt,
  • The problem with running a $1 Trillion deficit during an economic expansion is that it reduces the effectiveness of that tool during the next recession.

 

US Government Fiscal Spending

Lastly, government spending has been very supportive to the markets in particular over the last few quarters as economic growth has picked up.

However, that “sugar-high” was created by 3-massive Hurricanes in 2017 which has required billions in monetary stimulus which created jobs in manufacturing and construction and led to a temporary economic lift. We saw the same following the Hurricanes in 2012 as well.

 

These “sugar highs” are temporary in nature. The problem is the massive surge in unbridled deficit spending only provides a temporary illusion of economic growth. Over the long-term, debt leads to economic suppression. Currently, the deficit is rapidly approaching $1 Trillion, and will exceed that level in 2019, which will require further increases in the national debt.

There is a limited ability to issue debt to pay for excess spending. The problem with running a $1 Trillion deficit during an economic expansion is that it reduces the effectiveness of that tool during the next recession.