US Fed Hints At Quantitative Easing (QE) As Deficit to Reach $1 Trillion Next Year
- Government debt as a share of the economy to rise to its highest levels since just after the second world war
- The Fed is ready to tackle the problem with the aggressive expansion of the money supply
- MMT vs BTC is the title fight between state inflation and technological deflation
During his 2016 campaign trail, President Donald Trump, a critic of government debt said he would eliminate the national debt over a period of 8 years.
The US national debt is, however, growing faster than expected and will reach $960 billion in 2019 fiscal year and 1 trillion for 2020, as per the figures released by the Congressional Budget Office (CBO) on Wednesday.
Government debt as a share of the economy is further expected to rise from 79% this year to 95% in 2029, its highest levels since just after the second world war. Trump came to power with the promise to pay the US’s huge debts off but contributed by signing a $1.5 trillion tax cut bill, part of his attempt to stimulate growth.
This tax cut combined with sluggish economic growth and spending is what is driving this load of escalating debt. Deficits usually reduce in times of high employment and the US is having its longest job creation growth.
Three options to tackle the debt
Government debt has negative long-term consequences that give them the options of cut spending and selling assets to make payments, default on loan obligations or print money.
Printing money to cover the shortfall is an aggressive expansion of the money supply that could lead to high levels of inflation.
And the Fed is already hinting at it. Stated the July 30-31 FOMC minutes:
“A number of participants commented that, as many of the potential costs of the Committee's asset purchases had failed to materialize, the Federal Reserve might have been able to make use of balance sheet tools even more aggressively over the past decade in providing appropriate levels of accommodation,”
Many participants also believe that given the fact they have “experience” with QE, they are now experts and
“could proceed more confidently and preemptively in using these tools in the future if economic circumstances warranted.”
MMT vs BTC
As for why QE? Because everyone else is doing it.
“Several central banks had eased policy over the past month and a number of others shifted to an easing bias.”
It specifically mentions ECB’s Governing Council meeting that affirmed expectations for further easing.
“These changes to the policy outlook in the United States and across a number of countries appeared to play an important role in supporting financial conditions and offsetting some of the drag on growth from trade tensions and other risks.”
It also mentions ELB (Effective Lower Bound) fifteen times. Inflation as Balaji Srinivasan, former CTO of Coinbase puts it is already here, just not evenly distributed.
While the cost of cell phone service, new vehicles, clothing, TV, toys, phones, and personal computers have plummeted, college fees, health care, and vehicle maintenance have shot up.
“High valuations and lots of paper wealth created, but real incomes for many Americans stagnating,” said Srinvasan. There is a “tug of war between state inflation and technological deflation.
“MMT vs BTC is the title fight of these two ideologies,” he added.
Longer than 280 but…
1) The inflation is already here, it’s just not evenly distributed
2) High valuations and lots of paper wealth created, but real incomes for many Americans stagnating
3) Economy is tug of war between state inflation and technological deflation pic.twitter.com/0d4jTcGF45
— Balaji S. Srinivasan (@balajis) August 21, 2019