At the end of the day, a government’s economic job is to spend money and collect taxes.
The ones that spend too much ultimately have to pay it back, with interest. Running deficits is almost always popular with voters (and certainly with donors), particularly when it makes the stock market go up.
BCA today has a great chart showing just how much more the US has been spending than any other major economy. The deficits are out of control and were worsened further this year by latest round of corporate tax cuts.
The damage started with Trump’s election really. That tamed the Tea Party movement and it’s since been wiped out completely. the The Tax Cuts and Jobs Act of 2017 kicked off the spending orgy, covid worsened it, Biden added his infrastructure act and now Trump has gone back to the deficit trough.
There is no end to it and seemingly no political appetite to deal with it. Rather, we’re more likely to get politicians who lean on central banks to monetize the deficit with artificially low rates.
What’s worse in the US situation is that it’s sitting on a time bomb around social security, medicare and healthcare in general. Congress doesn’t look like it will pass Obamacare subsidies so those rates will rise in the new year but the pressure to help people pay for healthcare isn’t going to go away, nor will the aging demographics and out-of-control costs of US treatment.
Notably, the US dollar has been in a bull market for nearly the entirety of this chart and I don’t think that’s a coincidence. If/when Congress changes its tune on deficits (or the market barks), that’s going to be a reversal in the USD excess. At the same time, I don’t think it’s a surprise that euro had a better year this year as Germany signalled a loosening of spending in order to fund military investments.
