HDAD: Government policies related to COVID and their effect on the U.S. economy

Updated Jan 29, 2021

Jeff RosensweigAs part of Economist and Emory University Professor Jeff Rosensweig’s presentation, “The Global Economic Overview” at the virtual Heavy Duty Aftermarket Dialogue (HDAD) conference on Tuesday, he provided insights into the current business environment. The news was a mixed bag of challenging and promising short- and long-term forecasts for the U.S. economy.

Rosensweig said growth in early 2021 will be faster in the U.S. as part of a bounceback effect after declines especially in March and April in the U.S. There’s a lot of excess capacity in factories, for instance, so as demand rises, the economy should start growing when the virus is controlled by the vaccine. As more people get vaccinated, there will be a good growth throughout 2021, he says.

“We show the U.S. forecast at over 4 percent economic growth in 2021 compared with the fact it’s only been a little over 2 percent in the U.S. over the last decade,” he said.

Rosensweig went on to describe how fiscal and monetary policy helped the U.S. economy throughout the COVID-19 pandemic, adding there will be a price later for those policies.

Fiscal policy is federal government budgetary policy — spending and taxing, which will get more “interesting” now with President Joe Biden because his administration will probably support big government, more government spending and higher taxes, he said.

“The fact is we’ll probably have very large deficits continue under President Biden. We’ve had them since the pandemic started because we needed to get the economy going. We did get the economy growing and gained back more than half those jobs [that] were lost. We have created 12 million jobs, so we’re down 10 million by doing everything we could to stimulate the economy with fiscal policy and monetary policy,” Rosensweig said.

“The thing about fiscal policy is what we did is deficit spending. The government spent a lot of money with the CARES Act, etc., and we didn’t tax that much, which is good or that would have stopped us from having a nice economic recovery but when you have a deficit you have to borrow. But that means you get in debt,” he said.

The Total Federal Debt Of $21 Trillion Went Up To $235 Trillion Then The Pandemic Hit And From The Middle Of March The Debt Almost Jumps Straight Up And We Now Have A Government Debit Of $27 7 TrillionIn the middle of 2018, the government debt was rising. The total federal debt of $21 trillion went up to $23.5 trillion. Then the pandemic hit and from the middle of March the debt almost jumps straight up and we now have a government debit of $27.7 trillion.

Rosensweig explained monetary policy is what the Federal Reserve controls. The Fed makes more credit available through the banking system so the banks can make more loans to try to stimulate the economy. To do this, the Fed buys bonds from banks. Banks hold loans on their balance sheet as well as bonds. The Fed will buy bonds banks are holding and give the banks credit that the banks can then go out and lend it out.

Regarding the outlook for the U.S. and global economy, “the good news is we are returning to growth and that growth should continue. The vaccines are saving us and we will return to growth but after a bit of a bounce back, we won’t have very fast growth,” he said.

“The short-term actions were taken to get the economy expanding again, but in the long term we could have problems because we have that explosion of debt and money out there created by the Federal Reserve,” Rosensweig said. “This could be inflationary in the long run but for now we’re going to have about 2 percent inflation for the next couple years. We’re not too worried about inflation for next two years but beyond that we might have some. [higher] inflation.”

All that said, Rosensweig added, “The future of the U.S. still looks bright.”

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