Home > U.S. $1.52 Budget Proposal Emphasizes Education and Commerce

U.S. $1.52 Budget Proposal Emphasizes Education and Commerce

The United States moves at a break-necking speed on both the monetary and fiscal front. If on the monetary front traders were used to the Fed being proactive, the biggest surprise this year came from the fiscal front. 

The new administration in Washington wasted no time and delivered a $1.9 trillion fiscal stimulus in Q1 2021. It also laid the grounds for a new round of fiscal spending, mostly on infrastructure and other long-term projects. Furthermore, it recently released its proposed spending for 2022, with the biggest increase in spending going to education and commerce.

U.S. Trade Deficit Continues to Grow

The United States is one of the most indebted countries in the world, and the trend is not about to stop anytime soon. If anything, the COVID-19 pandemic left no other choice for authorities but to increase spending. Moreover, international organizations such as the International Monetary Fund (IMF) or the OECD, have urged governments around the world to keep spending during the pandemic, to provide relief to households and businesses.

The chart above shows the main commercial partners of the United States. We note the neighbouring countries, Mexico and Canada, but also China and the EU. The goods trade balance with the EU has increased in the last two decades, and now, with the new administration in place, the trend is likely to continue.

The idea is that when the U.S. spends, the other economies are benefiting from the so-called spillover effects. Therefore, indirect economic growth is expected from the fiscal stimulus and annual spending in America.

All in all, the new budget’s top priorities shifted drastically from the Trump era. America is once again back where it belongs – a top-notch economy that leads the world out of the economic recession.

As the chart above shows, real government gross investment in the United States is lagging well below the trend. In fact, there is an approximate $1.25 trillion gap forming in the last decade, and now we know why the new fiscal spending plan for long-term projects exceeds $2.5 trillion.

Basically, the gap will close and America will get back above the trend in the long-term real government gross investment. By real investment, it means that it accounts for expected inflation too.

All in all, America is not having a problem funding its deficit. As we have seen during the pandemic, the role of the U.S. dollar as a reserve currency increased. Effectively, it means that foreign nations increased their share of foreign reserves kept in dollars, basically buying the debt issued by the U.S. Treasury.

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