[글로벌 포커스 ①] Biden’s ‘2155 trillion won gambling’ started

When Trump included $900 billion at the end of last year, it was equal to 13% of U.S. GDP.
7% economic growth forecast this year, but there is anxiety about a decline in currency value and a surge in inflation

[아시아경제 박병희 기자] ‘Biden’s big gamble’. This is the title of the main article on the US President Joe Biden’s $1.9 trillion (about 2155 trillion won) economic stimulus law in a recent issue of The Economist, a British Economic Week magazine.

On the 12th (local time), President Biden signed an economic stimulus law worth $1.9 trillion. It has been only three months since former President Donald Trump signed a $900 billion stimulus law last December. The amount of economic stimulus support approved by the two presidents amounted to $2.8 trillion. It is equivalent to 13% of the US gross domestic product (GDP).

It is also predicted that the US economic growth rate will exceed 7% this year as a result of massive stimulus measures. But right now, the US government is bound to increase the burden of its fiscal deficit. As the dollar is loosened in large quantities, there is also growing anxiety that the value of money will fall and prices will surge.

The impact of this stimulus package does not stop only in the United States. The economist seems to have used the term gambling in terms of the possible adverse effects on the global economy.

◆ Lessons learned by’Vice President Biden’ = The passage of this stimulus package is President Biden’s first political achievement. Before taking office, he insisted that large-scale stimulus measures to respond to Corona 19 were needed and passed the economic stimulus law at his will.

It is analyzed that the reason Biden pushed for a large-scale stimulus law was due to his experience as a vice president in 2009. The scale of the economic stimulus law signed by former President Barack Obama on February 17 of the following year after the outbreak of the global financial crisis in 2008 was $787 billion. At that time, about a week after President Obama took office, the House of Representatives passed an economic stimulus bill worth 819 billion dollars, but there was a backlash that the amount of stimulus was too large, and the amount of stimulus was confirmed to be 788 billion dollars after labor. At the time, an analysis was raised that the economic recovery in the United States was delayed due to the small scale of stimulus.

However, it is pointed out that the criticism that the scale of the economic stimulus bill at the time was small does not justify the argument that the scale of stimulus should be large. The economic downturn caused by Corona 19 should be responded differently in that its pattern is different from the 2008 recession caused by poor mortgage loans.

◆Money driven by stocks and bitcoins= The direct cause of the 2008 global financial crisis was unreasonable lending to low-credit people. House prices, which seemed to be constantly rising, plunged, leaving many in debt and sluggish long-term demand.

On the other hand, in the case of Corona 19, the risk of prolonged sluggish demand is not great. Once the crisis has subsided, consumption can increase explosively. This was already proved by the US retail sales index in January. With the stimulus law approved in December last year, Americans received $600 per capita from the government. Since then, retail sales in January soared 5.3% compared to the previous month. At the time, it exceeded the analyst estimates compiled by Bloomberg at the time of 1.1%.

In this situation, President Biden added up to $1,400 to the national pocket. 85% of American households are eligible for cash payments. Since it is also paid to adult children, you can receive up to $5,600 (about 6.36 million won) for a family of four. In addition, an analysis suggests that when unemployment benefits and various tax refunds (credits) are added, the subsidy per household may exceed $30,000.

Much of this funding is expected to flow into stocks. According to a recent survey by Deutsche Bank of 430 individual US investors, those aged 25 to 34 said that half of the respondents plan to invest 50% of the cash they will receive in stocks.

Much of the subsidies that have already been released last year are directed towards savings and asset investment rather than consumption, further intensifying the asset bubble and income imbalance.

According to a report released by the U.S. Federal Reserve (Fed) on the 11th, the net worth of households in the U.S. at the end of the fourth quarter of last year was recorded at a record high of $13.2 trillion. At the end of the fourth quarter of last year alone, it increased by $6.9 trillion (5.6%). Net savings in 2020 amounted to $285 billion. This is double the previous high in 20018.

“These figures clearly show the imbalance in the economic recovery,” Bloomberg said. “After the pandemic, savings have increased significantly, and many Americans have bought homes and stocks.” The analysis that the recent surge in Bitcoin is also the result of enormous liquidity is dominant.

◆”Inflation could exceed 4%” = US Treasury Secretary Janet Yellen and other stimulus supporters do not deny the possibility of inflation. However, it is explained that it is only in the short term and can be controlled. Fed chairman Jerome Powell is adhering to an easing monetary policy, saying that normalization of employment is more important than inflation.

In contrast, Lawrence Larry Summers, a professor at Harvard University (former Treasury Secretary), warns that in the face of economic recovery, massive amounts of funds will be released, increasing pressure on inflation. Jeffrey Gundlock, CEO of Double Line Capital, who is called the’Bond of Bonds’, said, “The US consumer price index (CPI) growth rate will exceed 3% this summer.” “I expected.

The surge in the US fiscal deficit is also a factor. The U.S. Congressional Budget Office (CBO) said that President Biden’s stimulus law would increase fiscal deficit by $1.6 trillion for this fiscal year (October 2020 to September 2021) and reduce the burden of $528.5 billion for next fiscal year I expected it. The fiscal year’s fiscal deficit already exceeded $1 trillion.

The rise in the US fiscal deficit could also affect the dollar’s position. It is analyzed that this year, the price of the cryptocurrency bitcoin successively hits an all-time high because the dollar’s status as a safe asset is not as good as it used to be.

Reporter Park Byung-hee [email protected]