Goldman: What Is Going On In The US Is “Usually Reserved For Times Of War”

Friday, September 14, 2018
By Paul Martin

by Tyler Durden
Fri, 09/14/2018

Back in February, when the world was starting to become familiar with the trajectory of US debt and deficit spending under Trump’s fiscal plan, we showed a chart from Goldman which made a troubling forecast: the US fiscal situation was headed for “banana republic” status, or as Goldman put it more politely, “uncharted territory” as a result of soaring federal debt and interest expense.

Now, in a follow up report, Goldman economist Alec Phillips identifies the key risks that will worsen the “already-grim” US fiscal outlook (which he defines simply as “not good”). As a reminder, just yesterday we reported that the US fiscal deficit has resumed its surge, rising 40% Y/Y to $898BN for the first 11 months of the year, following the biggest monthly outlay by the US government in history.

Goldman – which now projects a $1.05tn deficit (4.9% of GDP) for FY2019 – picks up on this and writes that its expects that figure to rise significantly over time, reaching 5.5% of GDP by 2021 and 7% of GDP by 2028. This, Goldman adds ominously, “puts US fiscal policy in uncharted territory in two respects.”

First, running such a large primary deficit (federal revenues minus spending, not counting interest expense) in a period of strong growth and low unemployment is quite unusual, and according to Goldman is “generally reserved for times of war” as shown in the chart below.

The Rest…HERE

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