Ask a goalgami Expert:Answer

Have a financial question?SUBMIT>



Question:


Do you think this economy is the “new normal”?
-RealityBites


Answer:


It’s difficult to answer this question without expressing political views that are not appropriate here, but I’ll give it a shot. The recent past has seemed anything but normal as far as the economy and financial system are concerned, but there are reasons to believe – and worry – that the future is going to be more like the last few years than the many years that preceded them. The trend growth rate, the cruising speed of the economy through a typical cycle, has diminished for several decades. To try to stave off the effects of the slowdown, the government increased borrowing, so much so – the national debt is $14.3 trillion and counting – that repayment has put a further drag on growth. Money has to be found to service the debt, and the sheer size of the amount owed seems to have begun crowding out other borrowers, such as businesses and homeowners, from the market.
 
What makes conditions especially scary is that there may be no politically feasible way to curtail fiscal deficits, let alone bring down the national debt, without impairing prosperity. The recent debate in Washington over the debt ceiling doesn’t exactly inspire confidence that some way to square the circle will be found. Here is the crux of the dilemma: A reduction in government borrowing means having less money circulating through the economy. That limits growth and makes it less likely that the economy can expand enough for the debt to shrink relative to the nation’s economic output. So it hurts the economy if deficits continue to increase, and if deficits are brought under control it still may hurt the economy.
-Conrad de Aenlle



< BACK