Is US coronavirus spending and ballooning debt at risk of stoking global asset bubbles?
- Washington’s massive spending on coronavirus relief is adding to its huge debt levels and priming asset bubbles, analysts say
- Despite concerns, the US dollar-based global financial system makes it hard for countries like China to reduce their exposure
Another US economic stimulus package, coupled with the Federal Reserve’s willingness to keep its monetary tap on, could see trillions of dollars pumped into the global financial system and lead to a series of asset price bubbles, analysts have warned.
The so-called Modern Monetary Theory, currently in vogue among some financial leaders, argues the US government can enact infinite amounts of stimulus and spend as necessary on all desirable causes because the Federal Reserve can always print money to pay back the credit.
The US keeps printing money and this … pushes financial and property assets into a bubble that eventually bursts
But America’s ballooning debt and deficit spending are also being sustained by foreign countries who buy US Treasury securities and dollar-denominated assets.
“The US keeps printing money and this becomes problematic because it pushes financial and property assets into a bubble that eventually bursts,” said Raymond Yeung, Greater China chief economist at ANZ Bank. “Yet until there is a change in world order, everyone has to play along in a US-centric global economy.”
Since the global financial crisis more than a decade ago, both government and corporate debt have been rising in many countries, but particularly in the US, which now owes more than any nation in the world .
US general government borrowing – which includes federal, state and local government debt – surged from 61 per cent of gross domestic product (GDP) at the end of 2007 to 99 per cent in 2013 and 127 per cent in the second quarter of last year, data from the Bank of International Settlement showed.