Invest
US debt explodes as deflation sets in
The US will take on trillions in debt to subsidise its stimulus packages in the worst blowout since the GFC, with advisers believing deflation will set in for the next 12 months.
US debt explodes as deflation sets in
The US will take on trillions in debt to subsidise its stimulus packages in the worst blowout since the GFC, with advisers believing deflation will set in for the next 12 months.
The US Treasury will borrow $US2.999 trillion in privately held net marketable debt to pay off “new legislation to assist individuals and businesses” as well as changes to tax receipts and an increase in the assumed end-of-June Treasury cash balance.
The US Treasury is also widely expected to add an additional $677 billion during the July–September 2020 quarter.
“At the beginning of 2020, the US economy was in the midst of the longest recovery in American history,” said Assistant Treasury Secretary Michael Faulkender. “Yet towards the latter part of the first quarter, the US economy experienced an exogenous shock from the 2019 novel coronavirus (COVID-19) pandemic and the extraordinary measures taken to respond to it.”
The shutdown from COVID-19 has seen US GDP fall by 4.8 per cent, with the comparative three consecutive quarters of growth in the range of 2.0 to 2.1 per cent.
Freakonomics has predicted that the US economy loses between $US16 billion and $US19 billion a day while the country remains in lockdown.
Unemployment claims have also reached more than $US30 million. But eyes are now returning to the recovery, with some seeing the “bold steps” taken by the Trump administration as enough to offset the shock.
“Although available data suggests that economic growth will slow further in the second quarter of 2020, we are convinced that the downturn will be temporary, given that its cause was not the result of any underlying imbalances in the economy,” Mr Faulkender said.
“The US economy has demonstrated significant resilience in recent years, and although the onset of the pandemic was an exogenous shock, our response to it has been swift and comprehensive, with a view to limiting any future damage to the economy.”
However, Elliot Hentov, head of policy research, EMEA, at State Street Global Advisors, believes investors should not be concerned about a year of deflation.
“While markets are forward-looking, we find the concern over inflation misplaced this early in the downturn,” Mr Hentov said.
“The deflationary forces will be all-powerful for the coming year, even with the optimistic assumptions that COVID-19 treatments improve drastically and there is a ready-made vaccine over this time period.
“Then, once recovery sets in, there will be plenty of standalone hysteresis effects that produce an overhang to the economy and keep demand depressed.
“This macro driver will offset any supply-side inflationary impulses for a considerable amount of time. In short, investors do not need to position for inflation as the relative risks still skew the other way.”
RELATED ARTICLES
About the author
About the author
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more
