16 04/21 16/04/2021

As you may know by now, one of the countries showing more robust economic recovery/ growth is the U.S. The U.S. government and central bank pledged to do whatever it takes to have the economy running on all cylinders again; hence the huge spending we have seen so far. The increased spending is putting excess pressure on the U.S. budget deficit. The budget deficit crossed $1.7 trillion for the year 2021 up from $743 billion a year ago. The month of March alone added $660 billion to the budget deficit. This is alarming for many. Others believe that this budgetary deficit will not pose a problem as long as the U.S. can service its debts.

After using the same strategy as the U.S. back in the financial crisis, China opted for a different approach this time. Instead of increased spending China opted to limit their fiscal spending and reduce their debt level. Although the strategy worked back in 2008 it did so only in the short-term. In the long-term it took China a lot to lower its increased public debt level which in turn dented productivity. China’s Covid-19 fiscal stimulus was 4.7% of its GDP compared to the 27.1% of the U.S. China’s public debt is 66.5% of their GDP compared to the 133.6% of the U.S. How this will pan out for the U.S. can only be known after-the-fact. Nevertheless, the economic projections are very promising.

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