COVID-19 Outbreak (Update: More than 2.9M cases and 132,313 deaths in US)
Everyone in the short term benefits. In the long term, we have to address the debt or it will cause far more problems.
I'm not too worried about inflation in the short term but if we get this perfect recovery then hyper inflation could be a real thing and we will have to turn around and chose whether to roll with hyper inflation and cause even farther separation of classes or chose a really long down period in the economy. The good news is hyper inflation would let up pay off the debt fairly easily. The bad news is we are just as likely to see this recovery go sideways really quickly and enter deflationary period that the FED will spray even more money across the economy.
So yeah, free money is never free. The question just becomes which generation pays for it?
Here’s my thing, do you anticipate that American fiscal institutions, our taxing authority, and the long-run productive capacity of the nation’s economy will collapse in the next 10-20 years? Do you forsee an exodus on US Treasuries in the bond market in the next 25 years, and if so, to where?
There really is not a good argument for why debt is directly tied to economic health, and while on-book and off-book liabilities aren’t entirely immaterial, they require some context to actually know whether they are of concern. And right now, or in the medium to long term(next couple decades), I don’t see it.
Venezuela has maintained a relatively low debt to GDP ratio for decades, but I would be more concerned about their long-term economic and fiscal health because they are so wholly dependent on the oil sector and its handling of their market structure has been faulty, therefore making it a rather unstable country. One where people are not as confident in their long-term economic output and therefore taking on their long-term bonds.
We actually had a higher debt to GDP ratio in the late 1940’s and I don’t think anyone would argue that debt wasn’t worth it, especially since it next followed one of the longest and strongest periods of growth in modern history with us standing atop as the world hegemon. And because of that wise debt we actually made it easier to take steps to pay it down with the growth generated.
Which gets to the next point. Natural inflation and growth make the long-term burden of debt much less. As long as you are spending on worthwhile things that you can demonstrate are improving the economic output of your society and result as such, like investments in infrastructure, scientific endeavors, demand shortfall in recessionary periods through various make work and social safety net programs, wealth transfers that improve underlying social and economic health. that’s good debt spending that should actually make it easier to bring down debt long-term through greater economic output in the short through the long-term. While also keeping the confidence in your overall production capacity as a country high. It’s really when you take paradoxical measures that put downward pressure, inexplicably do nothing but reduce confidence(see debt ceiling), or are simply worthless measures that actually threaten the underlying long-term health(tax cuts and loopholes to wealthy people and businesses that don’t need it as a wealth gap continues to rise, or resisting immigration as a country with low or negative native birth rates), that you really shoot yourself in your own foot.
As for inflation, it’s the last thing I am worried about right now. In fact, we are actually in need of some inflation as a deflationary spiral is much more pressing as the virus continues to linger. It would be a great problem to have if in a year or two what we are really worried about is an economy overheating from a surge in growth that we need to ramp up interest rates and jiggle the money supply. That is actually a far easier problem to anticipate and address than a deflationary one.