Friday, February 26, 2021

“Joe Biden’s stimulus plan risks resurfacing a ghost that has disappeared: inflation”


Chronic. The most serious mistakes are generally committed at the start of a mandate, when the state of grace justifies keeping campaign promises, to hell with reason. Joe Biden’s stimulus package, for a desired amount of 1.9 trillion dollars (around 1.565 billion euros), or nearly 15% of US GDP, is one of them. It risks resurfacing a vanished ghost, inflation, and triggering a rise in interest rates, pushing America into recession.

Read Philippe Escande’s column: “Like pandemics, the return of inflation is a black swan, improbable and devastating”

The alarm was sounded by the biggest pundits of the American Keynesian school, Larry Summers, former Treasury secretary to Bill Clinton, and Olivier Blanchard, ex-chief economist of the IMF, famous for having criticized austerity too quickly imposed in the wake of the 2008 financial crisis. Summers warned of inflationary pressures “As we have not known for a generation”. “The 1,900 billion plan could lead to such overheating of the economy that it would be counterproductive”, added Mr. Blanchard.

By dint of having heard the Cassandras announce the return of inflation, no one is listening. However, the danger exists. If we have come to this, it is because of the multiple approximations of Joe Biden’s electoral speech. Mr. Biden assures that he does not want to repeat the error of 2009, when Barack Obama’s budgetary stimulus was insufficient to regain full employment.

Article reserved for our subscribers Read also Why inflation is expected to remain subdued in 2021 despite the economic recovery

But that’s far from being the case in 2020, and that’s where the second point comes in: Democrats refuse to say anything good was done under Trump, with a massive backing plan for the economy, which left Americans richer in 2020 than in 2019. This finding contradicts Mr. Biden’s speech of describing an America without soul or solidarity.

Manage year II of the crisis

Third problem, Mr. Biden speaks of the 2021 situation as if America is facing the onset of the Covid-19 crisis. In reality, he will have to manage Year II, that of convalescence. Ten million jobs go missing, African-American and Hispanic minorities hardest hit: no one questions the urgent need to help them, but the very expensive individual check for $ 1,400 that Joe Biden wants to send indifferently to Americans earning less than 75,000 dollars promises to be ruinous.

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