The US will take on trillions in debt to subsidise its stimulus packages in the worst blowout since the GFC.
The US Treasury will borrow US$2.999 trillion in privately held net marketable debt to pay off “new legislation to assist individuals and businesses” as well as changes to tax receipts and an increase in the assumed end-of-June Treasury cash balance. The Treasury also expects to borrow $677 billion during the July-September 2020 quarter.
“At the beginning of 2020, the US economy was in the midst of the longest recovery in American history,” said Assistant Treasury secretary Michael Faulkender. “Yet towards the latter part of the first quarter, the US economy experienced an exogenous shock from the 2019 novel coronavirus (COVID-19) pandemic and the extraordinary measures taken to respond to it.”
US GDP has fallen by 4.8 per since the outbreak of COVID-19 after three consecutive quarters of growth in the range of 2.0 to 2.1 per cent. Unemployment claims have also reached more than 30 million. But eyes are now returning to the recovery, with some seeing the “bold steps” taken by the Trump administration as enough to offset the shock.
“Although available data suggest that economic growth will slow further in the second quarter of 2020, we are convinced that the downturn will be temporary, given that its cause was not the result of any underlying imbalances in the economy,” Mr Faulkender said. “The US economy has demonstrated significant resilience in recent years, and although the onset of the pandemic was an exogenous shock, our response to it has been swift and comprehensive, with a view to limiting any future damage to the economy.
“Even now, there are signs of stabilisation in the initial claims data, instances of partial reopenings of the economy in some states, implementation of a second round of assistance to small businesses under the PPP program, greatly expanded unemployment benefits, and financial transfers to taxpayers.”
However, that stabilisation could be short-lived. Premature reopening of states could lead to more deaths and necessitate the reinstatement of lockdown and social distancing measures, leading to a second wave economic hit that could see more stimulus – and more debt.