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Biden's Economic Policy Puzzle

Added 01-21-21 01:04:02am EST - “On the menu today: Yellen's first Senate hearing, Biden's inauguration, Europe's small-loan buildup, and a look back at the Plaza Accord.” - Nationalreview.com

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Posted By TheNewsCommenter: From Nationalreview.com: “Biden’s Economic Policy Puzzle | National Review”. Below is an excerpt from the article.

Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: Yellen’s first Senate hearing, Biden’s inauguration, Europe’s small-loan buildup, and a look back at the Plaza Accord. To sign up for the Capital Note, follow this link.

Biden’s Imperial Circle (part 2) In her first Senate hearing as the nominee for Secretary of the Treasury, Janet Yellen confirmed that she’d given up her old hawkishness on budgets, arguing that the U.S. has sufficient wiggle room to keep running fiscal deficits. She committed to working “over time” to pass Biden’s $1.9 trillion spending proposal. At the same time, Yellen reaffirmed the country’s commitment to flexible exchange rates, saying that “the value of the U.S. dollar and other currencies should be determined by markets” and that “the United States does not seek a weaker currency to gain competitive advantage.”

Biden’s economic team has told us this much so far: the U.S. will continue to run deficits, the Fed will keep policy rates low, and the value of the dollar will fluctuate according to supply and demand. The latter point was meant to indicate that the Biden administration does not share Trump’s desire for a weaker dollar, but Biden takes office at a time when the dollar has persistently declined: Since June, the trade-weighted dollar index is down roughly 7 percent.

And while the U.S. appears poised to post strong GDP growth over the next two years, it will likely do so in lockstep with most of the world’s major economies.

Unlike the post-2008 recovery, which coincided with the European sovereign-debt crisis and periodic weakness in emerging markets, the post-pandemic world is headed for the “synchronized global growth” that economists hoped for in 2017. Expectations of strong recoveries in Asia and Europe partially explain the dollar’s recent slump. And with deficits ballooning, it will likely continue its decline as new issuances come to market at record-low yields.

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