SINCE the financial crisis, many left-leaning American commentators have yearned for more deficit spending to reflate the economy. Few would have predicted that a Republican administration would be the one to heed their calls. Yet financial markets seem to be betting that President-elect Donald Trump, backed by Republican majorities in the House and Senate, will go on a budgetary binge that ignites economic growth. Since the election the S&P 500 index of shares has jumped 3%, led by stocks like banks and retailers that soar and sink with the economic cycle.
Such expectations are not baseless. During the campaign Mr Trump called for tax cuts which, according to the Tax Policy Centre, a think-tank, would cost an eye-watering $7trn over a decade, raising the debt-to-GDP ratio by 26 percentage points (or, based on current projections, to 111% of GDP) by 2026. He promised new infrastructure spending worth $1trn, more money for defence and no cuts in spending on pensions and health care for the elderly (which is forecast to soar over the next decade). All else equal, such largesse should indeed give the economy some temporary vim. But there are three main...Continue reading
Source: United States http://ift.tt/2fJf7L1
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