The May edition of the International Economic Update from the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas was released on Monday. Two points stand out to me: (1) The global growth forecasts are less optimistic than most U.S. forecasters (e.g., Ben Bernanke), and (2) the ranking of countries by relative size of fiscal stimulus in 2009 puts the U.S. a little further from the top than I expected.
The first point is that advanced economies (the blue line in the chart above) will not return to positive growth until early 2010. This is in
line with my discussion from early March regarding the timing of the U.S. return to growth. Note that Ben Bernanke's forecast from his testimony to the Joint Economic Committee of Congress on Monday was more rosy.
The second point is that the projected U.S. fiscal stimulus policy for 2009 is not the biggest of any country, although it is the biggest we've had in the U.S. in nearly 60 years. The chart below ranks countries by stimulus package size as a percentage of the country's GDP. The U.S. 2009 stimulus, at 5.6% of GDP, leads most countries. But it is nowhere near China's 12.1% stimulus.
One substantial reason why a U.S. stimulus program of 5.5% of GDP is not as bad as the same size program in another country is that U.S. assets are still the safe haven for international capital. That is, other countries are still willing to purchase U.S. dollars and bonds more than any other international assets, effectively financing a significant portion of America's deficit spending. We should start worrying if we start to see signs of that trend reversing.
The second point is that the projected U.S. fiscal stimulus policy for 2009 is not the biggest of any country, although it is the biggest we've had in the U.S. in nearly 60 years. The chart below ranks countries by stimulus package size as a percentage of the country's GDP. The U.S. 2009 stimulus, at 5.6% of GDP, leads most countries. But it is nowhere near China's 12.1% stimulus.
One substantial reason why a U.S. stimulus program of 5.5% of GDP is not as bad as the same size program in another country is that U.S. assets are still the safe haven for international capital. That is, other countries are still willing to purchase U.S. dollars and bonds more than any other international assets, effectively financing a significant portion of America's deficit spending. We should start worrying if we start to see signs of that trend reversing.
Perhaps the most recent auction of Treasury securities represents the first sign that investors are beginning to back off of US debt?
It is a sign that they are backing off, but it would take a lot more movement to demote the dollar as the international currency. There is a possibility we'll see this in the future. But you have to ask the question right now, "Where else would you invest?"