Joe Biden’s Stimulus Package: End of Zero Inflation?

Spread the love

It is not yet definitively adopted, but if approved by Congress, Joe Biden’s plan could well have a major effect on the global economy. For the past ten years or so, in most developed countries, inflation has been practically zero, even negative, despite all the efforts of central banks. It may soon be the end of this period. The new American president wants to increase federal spending by around 8% of GDP in 2021, thus doubling the stake of his predecessor in 2020. Put end to end, these two sets of measures are of historic size, at the level of this that we sometimes observe in times of war. The impact on the US economy will be massive, but it will go far beyond its borders.

Of course, to finance these expenses, it will be necessary to borrow. Raising the corresponding taxes would amount to destroying the expansionist effect sought by taking back with one hand what one gives with the other. The federal government’s debt will therefore continue to soar. But what causes the most criticism in the United States is that these deficits could cause an expansion so strong that inflation would rise sharply. It is very plausible, but not certain. Let’s say it will.