Debt-financed stimulus could overheat economy, US scholar warns

The recent huge amount of debt-financed stimulus to the US economy is far from commensurate with the needs of the economy and would cause the economy to overheat, a US scholar said Thursday in an interview with Xinhua.

CHICAGO, (APP – UrduPoint / Pakistan Point News – March 11, 2021): The recent huge amount of debt-financed stimulus on the US economy is far out of proportion to the needs of the economy and is said to be result in an overheating economy, an American scholar said Thursday in an interview with Xinhua.

“Total fiscal stimulus in the United States has exceeded gross domestic product (GDP) by Germany, and its latest stimulus alone accounts for nine percent of U.S. GDP in 2019. This is more than what the US economy can productively absorb, ”said Khairy Tourk, professor of economics at Stuart. school of business at the Illinois Institute Technology in Chicago.

“The huge debt-financed stimulus would cause the economy to overheat, putting pressure on the prices get up. Said Tourk.

However, he admitted that the stimulus may “Help feed hungry children,” adding that $ 1.9 trillion in aid cannot be fully justified economically. “Most of these measures could be seen as a one-off social assistance measure aimed at providing assistance to families in need.” “The temporary increase in disposable income will have virtually no effect on stimulating the economy in the long run,” he said, warning that with unemployment falling much faster than expected recently, the rebound rapid could be associated with high inflation rates.

the United States followed an expansionary monetary policy with the Federal Reserve Treasury bills and mortgage backed securities up to 120 billion Dollars a month. In doing so, the Federal Reserve inadvertently pushed up asset prices, including stocks. market and obligations market.

The result is that the 10-year price / earnings ratio of Standard & PoorThe 500 s index rose to 34.9, well above the modern age average of 19.6. “Raising asset prices above real value opens the door to market bubbles, ”he warned.

“Asset inflation makes it difficult to assess the financial health of individual companies, as well as the economy as a whole,” Tourk said.

It is well known that the United States lived beyond his means, which is reflected in his immense budget deficit. In 2020, WE government its expenses were $ 6.55 trillion, while its income was $ 3.42 trillion. In order to finance its excessive spending, the United States borrows money of the international market.

“As the United States’ trade deficits continue to increase, it would reduce international confidence in the future value of the United States. Dollar, Tourk said, adding that with the rise of Asia, more and more business transactions are denominated in other currencies.

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