14 March 2021
Source: Bloomberg & Momentum Global Investment Management
What this chart shows The chart shows the size of the annual US fiscal deficit (or surplus if negative) since 2000, with the size as a percentage of the country’s GDP overlaid. It shows that the US has been in a fiscal deficit (meaning government expenses exceed government income) every year since 2002, with a significant increase following the Great Financial Crisis, before a steady fall and then gradual increase throughout the 2010s. 2020 heralded a three-fold increase in the fiscal deficit from the year before as the government sought to support the ailing economy, with the deficit jumping to $3.1 trillion, over 14% of GDP.
Why this chart is relevant
A widening fiscal deficit means more debt and government debt is now at its highest level relative to GDP since the Second World War (at over 100%). Low interest rates support this higher debt load, for now at least, but how central banks react to the recent rally in government bond yields will be fascinating. Higher yields make servicing debt more costly and are thus undesirable for borrowers.
Eventually, it is inevitable fiscal policy moves towards a tightening phase as the government looks to balance the books and this may have negative impacts on companies, through higher corporation tax for example. In the meantime, the fiscal taps remain firmly open: President Biden’s coronavirus support package of $1.9tn has now been passed by both the Senate and House of Representatives and is expected to be signed into law by Biden by the end of this week.
Furthermore, Biden is also planning an extensive infrastructure bill on top of the coronavirus relief package. Whilst these fiscal packages are encouraging for businesses there might be some nasty surprises around the corner as Biden comes asking for money to fund them.
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