American fiscal policy stems from bars – and it seems that no one wants to reform them

The writer is a professor of economics at Harvard University and author of the book “The Dollar, Your Problem”

American fiscal policy comes out of bars, and it seems that there is a small political will in any of the two parties to reform until a major crisis occurs.

The budget deficit 2024 was 6.4 percent of GDP. Reliable expectations indicate that the deficit will exceed 7 percent of the gross domestic product of the rest of President Donald Trump. This is on the assumption that there is no black SWAN event that causes again the hole and religion. With US debt that already exceeds 120 percent of GDP, the budget crisis is likely to be of some kind over the next five years.

It is true, if the markets are documented by American politicians in determining the priorities of bond owners who prevail completely – local and foreigners – above all, and not to engage in partial payment through inflation, there will be no cause for concern.

Unfortunately, if one looks at the long history of debt crises and inflation, the overwhelming majority occurs in the situations that the government can pay if it feels it. The crisis is usually stimulated due to a great shock that hunts politicians on their background, when the debts are already high, and unworthy financial policy.

Certainly, the only beautiful draft law law maintains tax cuts from Trump’s first state, which probably helped stimulate growth. However, the evidence from several rounds of tax cuts that belong to Ronald Reagan in the 1980s indicate that it does not pay for almost its price. In fact, they were the main contributor in the period of debt during the twenty -first century. The Trump’s new tax bill contains a set of very additional functions-there is no tax on advice, additional work or social security-unhelpful. It is not surprising that the Congress Budget Office concludes that the draft law will add $ 2.4 trillion to debt during the next decade.

The real problem for politicians is that American voters have become drinking not to have to deal with sacrifice. And why should they?

Since Bill Clinton budget the budget at the end of the 1990s, both Republican and Democratic leaders have stumbled for themselves to run a greater deficit than ever, apparently without result. If there is a recession, a financial crisis, or a pandemic, the voters depend on getting the best recovery that this money can buy. Who is about 20 to 30 percent of GDP in debt?

What has changed, unfortunately, is that real long -term interest rates today are much higher than in 2010. Between 2012 and 2021, the average return on the Ministry of Treasury bonds in the United States for 10 years was around zero. Today, it is more than 2 percent, and interest payments are likely to be a permanent force that leads the debt rate to the US GDP. The real interest today has risen more painful than it was two decades ago, when the American debt to GDP was half of what it is now.

Why do real rates rise? One of the reasons, of course, is to record global, public and private debt levels. This is only part of the story, and not necessarily the most important part.

Other factors – including geopolitical tensions, breaking global trade, increasing military expenditures, and the needs of potential force of artificial and popular intelligence – are all important. Yes, it can be said that inequality and population signs in the other direction, which is why a number of prominent scientists still believe that the ongoing return to low real interest rates will eventually provide today. But should the United States, which aims to be a global dominance for another or more century, is betting on the farm on this?

In fact, although the long -term interest rates are decreased, it is possible on an equal footing to rise with an average of 10 years in the United States, and now about 4.5 percent, as they eventually reached 6 percent or more. The height will be exacerbated if Trump succeeds in achieving his dream of a current account in the United States, which is the other side of foreign funds coming to the United States.

It will also be aggravated if, as he argues in my country The latest bookThe dominance of the American dollar is now wandering on the edges with China continues to separate it from the dollar, and the pioneers of Europe and encrypted currencies take their share in the market in the huge global underground economy.

Trump’s identification wars, tax threats to foreign investment and efforts to undermine the rule of law will only apply. In fact, if he succeeds in achieving his dream of closing the US running deficit, the decrease in the flow of foreign capital will lead to an increase in interest rates in the United States, and will also suffer growth.

Just because the American debt track is not sustainable, it does not mean that it needs to be terminated. After all, instead of allowing interest rates to continue to drift, the government can call for the Japanese financial repression that is subject to growth, while maintaining interest rates is artificially low and thus converting any crisis into slow movement.

But slow growth is barely desirable as well. Inflation is the most likely scenario given the centralization of growth in the United States, where the government (whether Trump or a successor) finds a way to undermine the independence of the federal reserve. The US debt will be high and flexible political balance as an amplifier of the main sound of the upcoming crisis, and in most scenarios, the American economy and the global situation of the loser dollar will be.