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How Does The US Macroeconomic Policy Go?

2011/7/15 10:15:00 34

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Since the outbreak of the subprime mortgage crisis in 2007, the US government has adopted a series of fiscal policies such as expansion of expenditure and tax cuts to stimulate the economy, and the US debt level and financial burden have increased significantly.

As of May 16, 2011, the total amount of US government debt has reached a legal limit of $14 trillion and 290 billion. If Congress can not raise the debt ceiling by the beginning of August, the United States will face the risk of "default".

I believe that the United States

fiscal policy

In a critical period: first, whether the debt ceiling can be raised.

If the debt ceiling can be raised, the government will not default, but reducing the deficit is still a long-term and arduous task.

Two, if the debt ceiling can not be raised as scheduled, the US debt will default, or the so-called "technical default".

The international credit crackdown on US Treasury bonds and the US dollar will be enormous, and will also have a huge impact on the global financial market.

The security of US dollar bonds reflects the political and economic credit of the United States and supports the international monetary position of the US dollar.

If the US debt default, there may be more financial turmoil than the euro debt crisis.

First, the credit rating of US Treasury bonds will be downgraded, which will give domestic and foreign investors a huge panic.

The three largest international rating agencies have long warned that the US sovereign debt rating will be placed on the negative watch list if the US debt ceiling is not raised in August 2nd or before the deadline set by the Treasury.

As early as April 18th this year, the international Rating firm Standard & Poor's has lowered the long-term credit rating outlook of the United States from "stability" to "negative".

Further, if the US fails to pay the coupon when it expires in August 15th, or if the $30 billion treasury bill due in August 4th can not be fully paid, the credit rating of US Treasuries will be further reduced.

Second, if the US Treasury bonds default, the interest rate of the US Treasury bond may rise rapidly, and the financing cost of bonds will also increase, and the overall market interest rate will rise significantly.

With the US economic recovery lower than expected, the rise in market interest rates will affect the recovery of the US economy and the road to deficit reduction will be even more difficult.

Finally, if the US debt default partially, it will cause financial market turbulence, and the US dollar will depreciate greatly.

The euro crisis is a typical precedent. Besides, there is no real debt default in a European debt crisis country. If the US debt default, it will cause extreme turbulence and panic in the financial market, and the global economy may face a new round of financial crisis.

The current US fiscal problem is not whether to raise the debt ceiling, but how to raise the debt ceiling.

Deficit reduction target

This is also the main reason for the two parties' disagreement.

The author believes that this is a short-term and long-term issue of balance and coordination.

Raising the debt ceiling is a short-term problem. If this problem is not solved, it will lead to debt default. This is the top priority of the US government. Deficit reduction is a long-term problem. The Republicans hope to raise the debt ceiling as a condition to promote the deficit reduction target. This is the focus of debate and the game of political interests.

It is inevitable that the United States will raise the debt ceiling. The key is to coordinate with what kind of deficit reduction targets it is necessary for the US government to do. In the short term, the deficit reduction target may be put to the goal of raising the debt ceiling.

From the perspective of monetary policy, the second round of quantitative easing policy in the US ended at the end of June this year.

Some scholars believe that the United States will not resume the new round of quantitative easing (QE3). Some scholars believe that the United States will restart the third round of quantitative easing or a disguised quantitative easing policy.

I believe that in view of the current economic situation, the recovery of the US economy is slow and the unemployment rate is still high. The United States will continue to maintain a loose monetary policy. Even if the Federal Reserve does not restart the third round of quantitative easing policy, at least the United States will not withdraw from the easing monetary policy soon.

When Bernanke testified on the 13 day of the first half of this year's monetary policy, he made the latest statement: the Fed may take further stimulus measures.

I believe that the Federal Reserve will continue to maintain a low interest rate policy, maintain the scale of previous purchases of bonds, continue to use treasury bonds to buy treasury bonds, to provide liquidity to the market, will not quickly shrink the bloated balance sheet.

The recent period is still a wait-and-see period and sensitive period. Any deterioration of economic data will spawn a new round of quantitative easing policy.

Monetary policy decisions and fiscal policies are obviously different. Fiscal policy is often passed through legislative procedures, through rounds of bargaining in parliament, and sometimes even by changing details. Monetary policy does not need to go through the tedious procedure of Parliament, nor does it require complicated planning and coordination.

The possibility of a third round of quantitative easing or a disguised quantitative easing policy is still high.

From the two policies of debt default and the implementation of QE3, I believe the US Congress will not risk it.

"Technical default"

This risk will eventually reach agreement, that is, raising the debt ceiling.

If there is a target of loss and reduction, if a default, in the short term, the investors holding the dollar assets will bring losses, including foreign investors; in the long run, the adverse effects on the United States will be huge, the security of the US debt and the international credit "gold sign" of the US dollar are the two trump cards of American financial expansion and financial hegemony. If the debt default and the trust of the international community are lost, the potential loss will be huge and the United States should not do so, this is the "worse loss of the person".

And the possibility of the implementation of the third round of quantitative easing policy by the Fed can not be ruled out, because the Fed's quantitative easing policy is conducive to stimulating the US economy and reducing the unemployment rate, though the effect is not good, but at least it works.

Although quantitative easing policy will have an adverse impact on emerging market economies, this impact is a spillover effect of monetary policy, while the United States is bad for people but is conducive to stimulating its economic growth.

Therefore, from the perspective of us macroeconomic policy, I believe that it will raise the upper limit of the national debt. This is an urgent problem. The deficit reduction target may be second in the short term. According to the changes in the economic situation, it is not possible to exclude the possibility of the US launching the third round of quantitative easing policy or the quantitative easing policy in disguised form.