Adding to America’s mountain of debt may be painful, but it’s the wise move given the scale of the problems and dirt-cheap borrowing costs.
“This is not the time to tighten the belt. The economy is in no condition for austerity,” said Joe Brusuelas, chief economist at RSM.
“This is the time to hit the fiscal accelerator to get the animal spirits moving and get the economy back on track,” Brusuelas added. “It’s a no-brainer.”
‘Very deep hole’
At this point, there are no tax hikes in the works to offset the cost. The goal of pursuing even more deficit-spending, so soon after the last package, would be to limit the scarring caused by the health crisis and address worsening inequality.
“We’re still in a very deep hole. We could do tremendous long-run damage to the economy if we don’t get things done quickly,” said Gus Faucher, chief economist at PNC.
Faucher added that failing to repair the economy now will make it harder to fix the budget later and address structural challenges posed by Medicare and Social Security.
“If we don’t get stimulus and we limp along, you’ll be fighting over a smaller pie,” he said.
Others argue the Biden team should wait a few months to assess the impact of last month’s $900 billion package, which provided more small business loans and prevented unemployment benefits from expiring.
“It seems quite premature to say we need another $2 trillion now given what we just passed,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan fiscal watchdog group.
Still, she acknowledged “we probably need to do more borrowing before it’s time to pivot away.”
Given that Democrats now control the US Senate, MacGuineas said the budget deficit is likely to go even higher than previously estimated.
“The Trump administration was one of the most fiscally reckless of recent times,” said MacGuineas. “On every chance to make the fiscal situation better, this administration chose to make it worse.”
$2,000 stimulus checks — but to whom?
The Biden administration may have a difficult time convincing lawmakers to support $2,000 stimulus checks — a popular idea advocated by both Trump and Senator Bernie Sanders.
The $2,000 stimulus checks are needed right now.
Yet the red-hot stock and housing markets suggest other families are doing better than a year ago.
Brusuelas said the next round of stimulus checks should be limited to unemployed Americans and those who can document income loss. “We can’t be putting forward money in an undisciplined way,” he said.
Rock-bottom rates — for now
Biden enters the White House during a time of unthinkably low interest rates. The United States can borrow for 10 years at just 1%, compared with about 3% when President Obama took office.
But if borrowing costs rise significantly, that mountain of debt will become that much heavier.
“While low interest rates change the contours of the fiscal debate,” the trio wrote, “they should not be assumed to persist forever.”