Yahoo Finance Slowing Growth: Is Debt the Answer?
Would More Government Debt Help the US Economy?
Russ explains why he’s skeptical that massive, debt-fueled government stimulus is what’s needed to accelerate the U.S. recovery.
Following another disappointing first quarter for the U.S. economy, many economic policy experts are once again asking: “What, if anything, can be done to accelerate the United States’ persistently soft recovery?”
One dimension of this debate is whether the U.S. government should be doing more to stir up demand, even if this means taking on more debt. But is debt the answer? Given the United States’ already sizeable existing obligations, I’m skeptical that another debt binge is in the interest of the country or the economy. Here are four reasons for my skepticism of massive, debt-fueled government stimulus.
Market Realist – That the US economy floundered in the first quarter of 2015 is now old news. The economy grew by an anemic 0.2% over the past quarter, much below analyst expectations. This can be seen in the previous graph.
The Federal Reserve (or Fed) has attributed the weakness in the economy to factors that are transitory in nature, including the unusually cold weather playing spoilsport for consumer spending (XLY) and retail (XRT), the slump in oil prices (USO) (BNO) causing a slowdown in the energy sector (XLE), and the West Coast port strike and the strength in the US dollar (UUP) causing a rise in trade deficit, to name a few. Though the Fed expects seasonal headwinds to pare off going ahead, debate has ensued among economists regarding the need for more debt to stimulate demand.
But is debt the answer? Can further government debt help revive consumer demand? With interest rates set to rise later this year, concerns about the federal deficit are likely to take center stage again. The previous graph shows the federal receipts and outlays over the last 25 years. The deficit for 2014 stood at a whopping $486.6 billion. The gap is likely to widen in the future. The Congressional Budget Office estimates the gap will rise to $554.1 billion by 2020.
We believe increased debt is not the answer to slowing economic growth. In this series we will explore the reasons why burgeoning debt is likely to be a problem rather than a panacea to demand woes.
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