Pump the U.S. economy with debt-derived cash to get it moving beyond the coronavirus pandemic, deal with the financial consequences of a weakening U.S. balance sheet later.
That seems to be the mood on Wall Street — and inside the White House — at the moment.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite have surged 25% from the mid-March lows as the U.S. government has enacted $2.3 trillion in stimulus measures for the stricken economy. All that has done is lift the bloated debt position of the U.S. to new heights — about $24.7 trillion as of Monday afternoon.
Markets have shrugged off the growing debt pile on the view that more stimulus is best given the current economic realities and the cost of debt is low thanks to unprecedented efforts by the Federal Reserve on rates — so debt could be refinanced and locked in on the cheap.
Treasury Secretary Steven Mnuchin warned the U.S. will have to address rising budget deficits “over time” in a weekend interview on Fox News. But, Mnuchin played up the more pressing need to take every possible action to jump start the U.S. economy.
“The market cares about stimulus, and will worry about government debt at a much later date when it creates a situation where there needs to be a lot in the way of budget cuts. I don’t see that day coming anytime soon. So I would expect that the market would cheer the government taking on more debt as long as it’s being used for effective stimulus,” said Invesco chief global market strategist Kristina Hooper on Yahoo Finance’s The First Trade.
That thesis is likely to be put further to the test in the months and years ahead.
Goldman Sachs strategists said on Monday it expects another $500 billion to be added to the deficit in the current fiscal year, reflecting another round of stimulus. The investment bank sees $1.5 trillion more added to the deficit over the next “couple of years.”
“Further fiscal support for the economy looks likely to be needed,” the strategists wrote.
At some point in the future, the Federal Reserve will be forced to raise interest rates. That is likely to wallop the U.S. economy because of its excessive debt levels. But as the pros lightly hint at today, in the long-run we are all dead. Let the debt be addressed by the next generation — making money and preserving today is of greater importance.